Choosing the narrative? The shadow banking crisis in light of Covid

Marcus Miller

No 15485, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Could experiencing a health pandemic aid in understanding the nature of financial crisis? It might, for example, help to discriminate between different narratives that claim to do so. In this spirit, two influential accounts of the near-collapse of shadow banking in US financial crisis of 2008 are analysed: one developed by Mark Gertler and Nobuhiro Kiyotaki and the other presented by the Financial Crisis Inquiry Commission of the US Congress. Using a common two-sector framework, key features of these contrasting accounts of the market for banking services are presented, along with their corresponding diagnoses of what precipitated financial crisis. To see what the experience of Covid might imply about their relative credibility, four aspects of the current pandemic are considered: how it began from a small biological shock; how it gets spread by contagion; the significance of externalities; and how it may end with a vaccine. But the reader is left to form his or her own judgement.

Keywords: Shadow banking; Rating agencies; Equity constraints; Technology and news shocks; Bank runs; Epidemic contagion; Social contagion (search for similar items in EconPapers)
JEL-codes: G01 G24 G41 Y8 Z13 (search for similar items in EconPapers)
Date: 2020-11
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Related works:
Journal Article: Choosing the Narrative: the Shadow Banking Crisis in Light of Covid (2021)
Working Paper: Choosing the narrative: the shadow banking crisis in light of Covid (2021)
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