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Shedding Light on Shadow Banking
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Shedding Light on Shadow Banking

Artak Harutyunyan, Alexander Massara, Giovanni Ugazio, Goran Amidzic and Richard Walton
IMF, 2015
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Editorial Rating

7

Qualities

  • Analytical
  • Eye Opening
  • Overview

Recommendation

Recent studies suggest that the shadow banking system’s use of market-based, nondeposit funding for its activities reveals important clues about the health and relative risk of an economy. But traditional banks are also big issuers of these “noncore liabilities,” according to International Monetary Fund economists Artak Harutyunyan, Alexander Massara, Giovanni Ugazio, Goran Amidzic and Richard Walton. Their statistical research on the linkages in financial intermediation could lead to ways of identifying the early warning signals of the next financial crisis. getAbstract recommends the scholars’ broad view of shadow banking to central bankers, policy makers and regulators.

Take-Aways

  • Authorities examining the role of shadow banking in the 2008 financial crisis have tended to focus on nonregulated, nonbank financial entities.
  • However, a financial institution’s liabilities, more than its legal or regulatory framework, may offer a better gauge of potential systemic risk.
  • When the economy expands rapidly, both banks and nonbank financial institutions tap “noncore liabilities” – such as debt securities, loans, money market fund shares, certain restricted deposits and funding from nonresidents – to meet greater credit demand.

About the Authors

Artak Harutyunyan, Alexander Massara, Giovanni Ugazio, Goran Amidzic and Richard Walton are economists at the International Monetary Fund.

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