Shadow Banking ― Scope, Origins and Theories

Shadow banking - a system of credit creation outside traditional banks - lies at the very heart of the global economy. It accounts for over half of global banking assets, and represents a third of the global financial system. It was also central to the development of the global financial crisis of 2007-09. The meltdown, centred on complex and opaque financial operations, entities and products, revealed that the shadow banking system has become central not only for banks and their lending models, but for economic stability and security as a whole. Although the term ‘shadow banking’ only entered public discourse in 2007, the importance and scope of the shadow banking system is now widely recognised by the international policy-makers. There is however, much less consensus on the origins of the shadow banking system, what role the shadow banking plays in global political economy and the optimal approach to regulating this complex segment of finance. This volume addresses these questions.

This volume is the first study to bring together the insights from financial regulators, practitioners and academics from across the social sciences on the subject of the shadow banking system. The first part traces the evolution and ongoing confusion about the meaning of ‘shadow banking’. The second section draws major lessons about shadow banking as posed by the financial crisis of 2007-09, provides comparative analyses of shadow banking in the US and Europe, and attempts to establish why shadow banking has emerged and matured to the level of a de-facto parallel financial system. And the third part goes beyond current regulatory concerns about shadow banking and explains why it is ‘here to stay’. Shadow banking is now a vital part of economic evolution and growth, whether we like it or not, and it is therefore vital that it is fully analysed and understood.