Shadow Banking: A Review of the Literature - Federal Reserve Bank of New York

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Staff Reports

Shadow Banking: A Review of the Literature

October 2012 Number 580

JEL classification: E44, G00, G01, G28

Authors: Tobias Adrian and Adam B. Ashcraft

We provide an overview of the rapidly evolving literature on shadow credit intermediation. The shadow banking system consists of a web of specialized financial institutions that conduct credit, maturity, and liquidity transformation without direct, explicit access to public backstops. The lack of such access to sources of government liquidity and credit backstops makes shadow banks inherently fragile. Much of shadow banking activities is intertwined with the operations of core regulated institutions such as bank holding companies and insurance companies, thus creating a source of systemic risk for the financial system at large. We review fundamental reasons for the existence of shadow banking, explain the functioning of shadow banking institutions and activities, discuss why shadow banks need to be regulated, and review the impact of recent reform efforts on shadow banking credit intermediation.

Available only in PDF pdf

38 pages / 767 kb

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