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Financial Stability Policies for Shadow Banking
Report

Financial Stability Policies for Shadow Banking

Staff Report No. 664

Tobias Adrian
New York Fed, 2014
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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.

Take-Aways

  • 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.
  • “Seven economic mechanisms” spur shadow banking, and each one requires a tailored regulatory response.
  • Shadow banks’ “specialization” extends risk across a number of parties. Shadow banks also indirectly benefit from government support and facilitate “regulatory arbitrage.”

About the Author

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

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