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Off the Radar: Exploring the Rise of Shadow Banking in the EU

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  • Martin Hodula

Abstract

This paper uses novel ECB/Eurosystem data on non-bank financial intermediation to investigate the potential factors of shadow banking growth for a panel of 24 EU countries. Consistent with several strands of literature, the EU shadow banking system is found to be highly procyclical and positively related to increasing demand of long-term institutional investors, more stringent capital regulation, and faster financial development. In addition, the paper offers two findings that have not been reported in the literature. First, it shows that the relationship between monetary policy and shadow banking growth is level-dependent and may be determined by the relative magnitude of interest rates in the economy. In this respect, two main motives driving the relationship are identified - the "funding cost" motive and the "search for yield" motive. Second, the driving forces of shadow banking differ between the old and new EU countries, largely due to the missing legal framework for securitization in the new members.

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  • Martin Hodula, 2018. "Off the Radar: Exploring the Rise of Shadow Banking in the EU," Working Papers 2018/16, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2018/16
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    Cited by:

    1. Jordan Kjosevski & Mihail Petkovski & Aleksandar Stojkov, 2020. "The impact of macroeconomic and financial factors on shadow banking in the new EU member states," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 407-427.
    2. Martin Hodula, 2019. "Monetary Policy and Shadow Banking: Trapped between a Rock and a Hard Place," Working Papers 2019/5, Czech National Bank.
    3. Saibal Ghosh, 2022. "Does financial interconnectedness affect monetary transmission? Evidence from India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 15(3), pages 273-300, September.

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    More about this item

    Keywords

    European Union; monetary policy; panel data analysis; shadow banking;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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