What is Shadow Banking?

Author/Editor:

Stijn Claessens ; Lev Ratnovski

Publication Date:

February 11, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

There is much confusion about what shadow banking is. Some equate it with securitization, others with non-traditional bank activities, and yet others with non-bank lending. Regardless, most think of shadow banking as activities that can create systemic risk. This paper proposes to describe shadow banking as “all financial activities, except traditional banking, which require a private or public backstop to operate”. Backstops can come in the form of franchise value of a bank or insurance company, or in the form of a government guarantee. The need for a backstop is in our view a crucial feature of shadow banking, which distinguishes it from the “usual” intermediated capital market activities, such as custodians, hedge funds, leasing companies, etc.

Series:

Working Paper No. 2014/025

Subject:

Asset and liability management Banking Capital markets Financial markets Financial sector policy and analysis Financial services Government liabilities Liquidity Public financial management (PFM) Shadow banking Systemic risk

English

Publication Date:

February 11, 2014

ISBN/ISSN:

9781475597349/1018-5941

Stock No:

WPIEA2014025

Pages:

9

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