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The cross-border interconnectedness of shadow banking

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  • Ozgur, Gokcer

Abstract

Shadow banking has shown a consistent growth in global financial markets, raising concerns about its cross-border interconnectedness and the potential transmission of financial shocks. Previous financial crises have highlighted the risks associated with interconnectedness, underscoring the need for a comprehensive analysis of shadow banks’ international linkages. Using a global vector autoregressive model and data from twelve countries for 2000–2020, this study examines the international interconnectedness of shadow banking. The empirical findings demonstrate that shadow banking is internationally interconnected and that these interconnections are statistically associated with funding conditions in the global money and capital markets. Specifically, cross-border statistical associations exist between shadow bank assets, short- and long-term interest rates, and equity prices in many countries, as well as with the US risk premium and term spread. Hence, shadow banks are significantly exposed to cross-border shocks and can potentially transmit and propagate these shocks.

Suggested Citation

  • Ozgur, Gokcer, 2023. "The cross-border interconnectedness of shadow banking," Economic Modelling, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001980
    DOI: 10.1016/j.econmod.2023.106386
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    More about this item

    Keywords

    Shadow banking; Global credit cycles; Interconnectedness;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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