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Financial Disintermediation and Financial Fragility

Kosuke Aoki and Kalin Nikolov ()
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Kosuke Aoki: The University of Tokyo

No CARF-F-374, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper investigates how expanding the corporate bond market and the shadow banking sector affect the susceptibility of the financial system to crisis. We show that the corporate bond market can increase banking fragility although it also diminishes the impact of banking crises. Shadow banking allows higher financial system leverage and thus increases bank risk taking and fragility even further. Because it relies on bank capital for its operations, the shadow banking sector provides no funding diversi cation and cannot offset the real economy impact of a banking crisis.

Date: 2015-11
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