What is Shadow Banking?

IMF Working Paper No. 14/25

9 Pages Posted: 4 Feb 2015

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Date Written: February 2, 2015

Abstract

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.

Suggested Citation

Claessens, Stijn and Ratnovski, Lev and Ratnovski, Lev, What is Shadow Banking? (February 2, 2015). IMF Working Paper No. 14/25, Available at SSRN: https://ssrn.com/abstract=2559504. or http://dx.doi.org/10.2139/ssrn.2559504

Stijn Claessens

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Lev Ratnovski (Contact Author)

International Monetary Fund ( email )

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

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

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