The Changing Nature of Financial Intermediation and the Financial Crisis of 2007–2009

Posted: 18 Oct 2010

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: April 2010

Abstract

The current financial crisis has highlighted the changing role of financial institutions and the growing importance of the shadow banking system, which grew on the back of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States but has had a profound influence on the global financial system as a whole. In a market-based financial system, banking and capital market developments are inseparable, and funding conditions are closely tied to the fluctuations in leverage of market-based financial intermediaries. Balance-sheet growth of market-based financial intermediaries provides a window on liquidity in the sense of the availability of credit, whereas financial crises tend to be associated with contractions of balance sheets. We describe the changing nature of financial intermediation in the market-based financial system, chart the course of the recent financial crisis, and outline the policy responses that have been implemented by the Federal Reserve and other central banks to counter it.

Suggested Citation

Adrian, Tobias and Shin, Hyun Song, The Changing Nature of Financial Intermediation and the Financial Crisis of 2007–2009 (April 2010). Annual Review of Economics, Vol. 2, pp. 603-618, 2010. Available at SSRN: https://ssrn.com/abstract=1693046 or http://dx.doi.org/10.1146/annurev.economics.102308.124420

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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