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Shadow Banking in the Euro Area: An Overview

38 Pages Posted: 8 May 2012  

Klara Bakk-Simon

European Central Bank (ECB)

Stefano Borgioli

European Central Bank (ECB)

Celestino Giron

European Central Bank (ECB)

Hannah Sabine Hempell

European Central Bank (ECB) - Directorate General Economics

Angela Maddaloni

European Central Bank (ECB)

Fabio Recine

affiliation not provided to SSRN

Simonetta Rosati

European Central Bank (ECB)

Date Written: September 22, 2011

Abstract

Shadow banking, as one of the main sources of financial stability concerns, is the subject of much international debate. In broad terms, shadow banking refers to activities related to credit intermediation and liquidity and maturity transformation that take place outside the regulated banking system. This paper presents a fi rst investigation of the size and the structure of shadow banking within the euro area, using the statistical data sources available to the ECB/Eurosystem. Although overall shadow banking activity in the euro area is smaller than in the United States, it is significant, at least in some euro area countries. This is also broadly true for some of the components of shadow banking, particularly securitisation activity, money market funds and the repo markets. This paper also addresses the interconnection between the regulated and the non-bank-regulated segments of the financial sector. Over the recent past, this interconnection has increased, likely resulting in a higher risk of contagion across sectors and countries. Euro area banks now rely more on funding from the financial sector than in the past, in particular from other financial intermediaries (OFIs), which cover shadow banking entities, including securitisation vehicles. This source of funding is mainly shortterm and therefore more susceptible to runs and to the drying-up of liquidity. This finding confirms that macro-prudential authorities and supervisors should carefully monitor the growing interlinkages between the regulated banking sector and the shadow banking system. However, an in-depth assessment of the activities of shadow banking and of the interconnection with the regulated banking system would require further improvements in the availability of data and other sources of information.

Keywords: Shadow banking, bank regulation, repo markets, securitisation

JEL Classification: G01, G15, G21, G28

Suggested Citation

Bakk-Simon, Klara and Borgioli, Stefano and Giron, Celestino and Hempell, Hannah Sabine and Maddaloni, Angela and Recine, Fabio and Rosati, Simonetta, Shadow Banking in the Euro Area: An Overview (September 22, 2011). ECB Occasional Paper No. 133. Available at SSRN: https://ssrn.com/abstract=1932063

Klara Bakk-Simon

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Stefano Borgioli

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Celestino Giron

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Hannah Sabine Hempell

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Angela Maddaloni

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Fabio Recine (Contact Author)

affiliation not provided to SSRN

Simonetta Rosati

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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