Global Systemic Risk: What's Driving the Shadow Banking System?

16 Pages Posted: 17 Nov 2015

See all articles by Robert F. Engle

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Fariborz Moshirian

Institute of Global Finance, UNSW Business School

Christopher Wong

University of New South Wales (UNSW), UNSW Business School, School of Economics, Students; University of New South Wales (UNSW), Faculty of Law, Students

Date Written: July 2015

Abstract

The global shadow banking system (SBS) continues to increase in size and scope at a steady pace. The Financial Stability Board estimates that in 2014, the global SBS reached 75 trillion USD, which is equivalent to 120% of the GDP of all measured jurisdictions in the world. Advanced economies have the largest SBSs, while those of emerging economies showed the most rapid growth. China’s SBS is one of the fastest growing in the world. Globally, the growth of the SBS has been driven by the tightening regulation of traditional banks. This paper discusses issues related to the shadow banking system (SBS) with a focus on Asia and in particular on China, in the context of global systemic risk. The paper highlights the importance of the growing shadow banking industry in Asia and factors that will contribute to its expansion in the immediate years ahead. The paper compares and contrasts shadow banking in the US versus that in China. It highlights the risks associated with shadow banking, including leverage risk, maturity and liquidity mismatch and regulatory arbitrage.

Suggested Citation

Engle, Robert F. and Moshirian, Fariborz and Wong, Christopher, Global Systemic Risk: What's Driving the Shadow Banking System? (July 2015). Institute of Global Finance Working Paper No. 1. Available at SSRN: https://ssrn.com/abstract=2692076 or http://dx.doi.org/10.2139/ssrn.2692076

Robert F. Engle (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
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New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Fariborz Moshirian

Institute of Global Finance, UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61 2 93855859 (Phone)
+61 2 94877519 (Fax)

Christopher Wong

University of New South Wales (UNSW), UNSW Business School, School of Economics, Students ( email )

High Street
Sydney, New South Wales
Australia

University of New South Wales (UNSW), Faculty of Law, Students ( email )

Sydney
Australia

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