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The cross-border interconnectedness of shadow banking

Gokcer Ozgur

Economic Modelling, 2023, vol. 126, issue C

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.

Keywords: Shadow banking; Global credit cycles; Interconnectedness (search for similar items in EconPapers)
JEL-codes: E40 G15 G23 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001980

DOI: 10.1016/j.econmod.2023.106386

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