Why Fixing the 'Shadow Banking' Sector Is Essential for the U.S. Housing Market

Networks Financial Institute Policy Brief No. 2013-PB-01

32 Pages Posted: 16 Mar 2013 Last revised: 25 Mar 2013

See all articles by Richard Christopher Whalen

Richard Christopher Whalen

Whalen Global Advisors LLC; Economic Advisory Committee of FINRA; National Mortgage News; National Association of Business Economists (NABE)

Date Written: March 14, 2013

Abstract

The title “shadow banking system” sounds pejorative and certainly is in the minds of most people who work in or watch the business of money and credit. In the world of subprime real estate, abuse of private financial vehicles with insurance enhancements and ratings led to the collapse of the U.S. financial sector in the 2007-2009 subprime crisis. When it functions correctly, as a non-bank system that competes with insured banks (and not as a process for hiding excessive bank leverage) the shadow banking system is, in fact, a necessary and extremely useful part of the global economy. Non-banks tend to be far more efficient than commercial banks. Additionally, non-bank finance is responsible for supporting a large fraction of overall economic growth in the U.S. and other market economies.

Keywords: shadow banking, financial crisis, mortgage finance, true sale

JEL Classification: G20, G23, G28

Suggested Citation

Whalen, Richard Christopher, Why Fixing the 'Shadow Banking' Sector Is Essential for the U.S. Housing Market (March 14, 2013). Networks Financial Institute Policy Brief No. 2013-PB-01, Available at SSRN: https://ssrn.com/abstract=2233381

Richard Christopher Whalen (Contact Author)

Whalen Global Advisors LLC ( email )

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Economic Advisory Committee of FINRA ( email )

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National Mortgage News ( email )

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National Association of Business Economists (NABE) ( email )

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