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Literature Review On Shadow Banking

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During the last few decades a collection of literature relating to shadow banking has emerged. The phrase NBFI became more well-known due to its major growth, so it has been set an object of research for many scholars. These scholars made contributions to understanding the issue of NBFIs as a non-regulated financial intermediary, as well as their influence on monetary policy.
McCulley (2007) was the first to use the term shadow banking, describing highly leveraged and unregulated financial institutions that do not benefit from a safety net or from other official guarantees. In the course of the 2008–2009 crisis a number of studies addressed a variety of issues on the shadow banking system, including general development, structure, transmission …show more content…

(2010) all provided a first general idea of the institutions and instruments engaged in the shadow banking system. Both Pozsar et al. and Pozsar were the first to introduce the types of shadow banks, mapping and describing the shadow banking system as a daisy chain of financial intermediaries that carry out credit intermediation. Though, they do not provide a complete quantitative overview that gives information about the in general development and size of the entire shadow banking system. They present the shadow banking system as a system of risk originators, securitization vehicles and risk bearers linked through different financial instruments, and offer an initial structural overview.
The Financial Crisis Inquiry Commission (2010) also describes the nature and scope of the shadow banking system, contributing a definition of the system and an overview of important institutions and instruments. Though, there is no clarification on the interconnections or on how the institutions interact with each …show more content…

They interpret that though Shadow Banking does not involve intermediation as in advanced economies, it can pose systemic risks directly – as system grows – and indirectly through its interconnectedness to the banking system. Policy makers should insure that the Shadow Banking provide alternative but safe sources of funding to the private sector. The risks include: potential of excess leverage, instability of wholesale funding and potential bank run, regulatory arbitrage. To sum up, the existing literature to date concentrates on how the system of shadow banking and its parts developed before and during the crisis, and what are important aspects that led to the growth of certain parts of the financial

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