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Financial Stability Policies for Shadow Banking

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Financial Stability Policies for Shadow Banking

Staff Report No. 664

New York Fed,

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5 основных идей
Аудио и текст

Что внутри?

A specter haunts the financial system today, but it is probably not what you assume.

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Editorial Rating

8

Qualities

  • Analytical
  • Overview
  • Background

Recommendation

Shadow banking is something everyone has heard of but few understand well. Roughly equal in size as an industry to traditional banking, shadow banking is indispensable in today’s financial system. While it has grown ad hoc in response to market needs, it now has the heft to potentially disrupt economies all over the world. getAbstract recommends this paper for its astute treatment of the topic of shadow banking and the regulation needed to deal with it.

Summary

Shadow banking is “credit intermediation that involves entities and activities outside the regular banking system.” Its liabilities today equal more than 70% of US GDP, up from around 1% in 1960. Like its size, shadow banking’s systemic importance and its potential for harming the real economy are enormous. The sector operates without public supervision or government backstops. While shadow banks can’t rely on direct state support, they can garner indirect support if their parent firms are traditional banks or insurance companies. Shadow banks transact with regulated financial institutions and thus could destabilize credit and securities markets. “Seven economic mechanisms” spur shadow...

About the Author

Tobias Adrian is a senior vice president of the Federal Reserve Bank of New York.

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