An Assessment of the Shadow Banking Sector in Europe

Abstract

We provide an estimate of the size of the shadow banking sector in Europe. We compare it to the shadow banking sector in the U.S. and discuss potential extensions and open issues related to data availability as well as the inclusion of aspects of hedge funds activities and exchange-traded funds. According to our estimates, the shadow banking sector in Europe amounts to around USD 13 trillion in 2010Q4 (EUR 9500) and USD 15.8 trillion in the U.S. This is the equivalent of 30% of the banking sector liabilities in Europe and 130% in the U.S. Beyond data uncertainties for Europe, the difference with the U.S. can be accounted for by a smaller role played by securitisation in Europe and a more prominent role played by banks in the European financial system. Finally, while the U.S shadow banking sector has experienced a 20% decline since 2008Q1, the European shadow banking sector has remained broadly stable.

Keywords: shadow banking system, securitisation, money market funds, commercial paper, securities lending

JEL Classification: G1, G20, G21