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Off the radar: Factors behind the growth of shadow banking in Europe

Martin Hodula, Ales Melecky () and Martin Machacek

Economic Systems, 2020, vol. 44, issue 3

Abstract: This paper uses novel data from the European Central Bank and the Eurosystem on non-bank financial intermediation to investigate the potential factors of shadow banking growth for a panel of twenty-four countries in the European Union (EU). We find that the EU shadow banking system is highly procyclical and positively related to increasing demand by long-term institutional investors and to more stringent capital regulation. We show that individual entities in the shadow banking system can act as both complements and substitutes to traditional banking. In addition, we estimate four country-specific models using a Bayesian estimation method. We supplement the panel model estimates, which serve as a priori information, with data from a specific economy. We assert that, although some shadow banking determinants are uniform across countries, other may have heterogeneous effects across countries because of country-specific characteristics.

Keywords: Bayesian model; Capital regulation; EU countries; Macroeconomic drivers; Shadow banking (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:3:s0939362520301369

DOI: 10.1016/j.ecosys.2020.100808

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