SHADOWBANKING · Monetary Policy and Shadow banking: global micro-evidence from ABCPs

Monetary Policy and Shadow banking: global micro-evidence from ABCPs

Project aims to further understand the shadow banking entities sponsored by banks. More specifically, to assess their response to monetary policy changes. The financial crisis revealed how the banking system is both intertwined with and exposed to systemic risks in the shadow banking system. This latter is generally defined as “credit intermediation involving entities and activities outside the regular banking system”, or non-bank credit intermediation. The complexity of the issue, the heterogeneous legal forms and accounting standards, have so far limited empirical research on these “de facto” banks operating outside the scope of the regulatory framework. Based on a hand-collected unique dataset, the project aimed at examining a special type of shadow bank, i.e. asset-backed commercial paper conduits (ABCPs), which are typically sponsored by banks, and explore how they are affected by and transmit monetary policy and, ultimately, may contribute to financial and banking instability. Shadow Banking is a current priority in policy-makers’ agenda such as the IMF, ECB, FSB and BCBS. The scope of policy actions is to transform the shadow banking system into a resilient market-based financing to real economy, recognizing that by helping to complete markets - for instance - by giving firms new opportunity for raising capital when bank lending is unavailable, and providing lenders with more strategies for portfolio diversification, shadow banking might yield greater efficiencies and risk sharing capacity. This is even more relevant in Europe, where the banking system is struggling to provide adequate financing especially to the Small Medium Enterprises (SMEs). However, the lack of granular data – even for policy-makers- has so far limited the policy actions and interventions in the market. One key objective remains to avoid the build-up of risks we saw before the financial crisis. From an academic perspective, many theoretical works have been proposed to explain and interpret the functioning of this system, but the lack of data has so far prevented the possibility to empirically test them. The objective is to enhance the Researcher's career in empirical macro-banking with a focus on shadow banking. The core output of the project is the construction of an extended dataset on shadow banking entities, for the longest period possible and for major world economies. The dataset as well as the results will be used in discussion and for engagement with public audiences, digital and traditional media, academics and policy-makers in international conferences, to ensure the best possible visibility and dissemination of the research and of the researcher.

Data: CORDIS, © European Union