Shadow Banking System: A complement to other regular financial systems? Evidence from International Data

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We examine empirically the linkage of the shadow banking system and other financial systems using a sample of 29 countries over the period 1990 to 2013. Even though the shadow banking system is different across these countries, the linkage between the financial systems is generally common across most of the countries studied. We use one of the main growth drivers of the shadow banking system which is “shadow banking as a complement” to account for the linkage between the shadow banking system and other financial systems. Our results confirm the complementary theory of the shadow banking system. Moreover, these results endorse the fact that banks’ sponsorship of shadow banking activities increased the linkage. Banks are not the only main actors in the financial system anymore; shadow banks are also playing an essential role in raising funds as well. Hence, the shadow banking system should be considered as the new parallel system; a system which is a complement to and not a substitute for other financial systems.

Author(s):

Zeinab Said    
University Grenoble Alpes
France