An Exploratory Report on Shadow Banking
An Exploratory Report on Shadow Banking
Neal Edmonson
University of the District of Columbia
Money and Banking
Professor Muhammad Samhan
March 4, 2013
Table of Contents Executive Summary 3 Findings 4 Risk 10 Regulation 11 Conclusion 12 Bibliography 13
Executive Summary
This paper documents the institutional features of shadow banks, discusses their economic roles, and analyzes their relationship to the traditional banking system. It utilizes the print and web resources supplied in its bibliography to focus on institutional details of the shadow banking system, including information on the system’s collapse. It raises the question of whether the Shadow Banking System should be more regulated due to its inherent and systemic risks to our current financial system.
Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees. Within the market-based financial system, “shadow banks” have served a critical role. The rapid growth of the market-based financial system since the mid-1980’s changed the nature of financial intermediation. In the US, prior to the 2008 financial crisis, the shadow banking system had overtaken the regular banking system in supplying loans to various types of borrowers; including businesses, home and car buyers, students and credit users. As they are often less risk averse than regular banks, entities from the shadow banking system will sometimes provide loans to borrowers who might otherwise be refused credit.
The 2008 financial crisis exposed the systemic risk associated with Shadow Banking and the world’s financial system. In this paper, I documented the specialized financial institutions of the shadow banking system, and demonstrated that these financial intermediaries played an important role in the run-up to the financial crisis of 2008. The two most important positions described in
Neal Edmonson
University of the District of Columbia
Money and Banking
Professor Muhammad Samhan
March 4, 2013
Table of Contents Executive Summary 3 Findings 4 Risk 10 Regulation 11 Conclusion 12 Bibliography 13
Executive Summary
This paper documents the institutional features of shadow banks, discusses their economic roles, and analyzes their relationship to the traditional banking system. It utilizes the print and web resources supplied in its bibliography to focus on institutional details of the shadow banking system, including information on the system’s collapse. It raises the question of whether the Shadow Banking System should be more regulated due to its inherent and systemic risks to our current financial system.
Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees. Within the market-based financial system, “shadow banks” have served a critical role. The rapid growth of the market-based financial system since the mid-1980’s changed the nature of financial intermediation. In the US, prior to the 2008 financial crisis, the shadow banking system had overtaken the regular banking system in supplying loans to various types of borrowers; including businesses, home and car buyers, students and credit users. As they are often less risk averse than regular banks, entities from the shadow banking system will sometimes provide loans to borrowers who might otherwise be refused credit.
The 2008 financial crisis exposed the systemic risk associated with Shadow Banking and the world’s financial system. In this paper, I documented the specialized financial institutions of the shadow banking system, and demonstrated that these financial intermediaries played an important role in the run-up to the financial crisis of 2008. The two most important positions described in
Bibliography: Lowenstein, Roger. “When Genius Failed: The Rise and Fall of Long-Term Capital Management.” Random House. Muhammad Samhan, 2000. Print. Schiller, Robert. “Finance and the Good Society.” Princeton University Press. Muhammad Samhan, 2012. Print. Cowen, Tyler. “The Age of the Shadow Bank Run.” The New York Times. Muhammad Samhan, 24 Mar. 2012. Web. Source: http://www.nytimes.com/2012/03/25/business/the-bank-run-updated.html?_r=0 Roubini, Nouriel. “The Shadow Banking System is Unraveling.” The Financial Times. Muhammad Samhan, 30 Apr. 2012. Web. Brunsden, Jim & Moshinsky, Ben. “Shadow Banking Grows to $67 Trillion Industry, Regulators Say.” Bloomberg. Muhammad Samhan, 6 Mar. 2013. Web. “Chasing The Shadow Of Money.” Zero Hedge. Muhammad Samhan, 17 May. 2009. Web. Source: http://zerohedge.blogspot.com/2009/05/chasing-shadow-of-money.html --------------------------------------------