Shadow Banking Effect on Global Financial Stability
Shadow banking refers to a web of specialized financial agencies that direct funding from savers to investors through a variety of secure funding techniques. The financial crisis experienced during the great recession between 2008 and 2009, illustrated that unregulated financial activities could undermine international financial stability leading to an economic crisis (Gabrieli, Pilbeam, & Shi, 2018). This study evaluates the impact of shadow banking on global financial stability.
I selected this topic because it relates to my career and I sought to evaluate the influence of shadow banking on the financial stability of global economies. The proposal has set the following objectives: to describe the major markets of the shadow banking system by estimating its size, to evaluate the risks related to shadow banking operations to financial stability and to estimate the influence of shadow banking on developed economies. The research arguments that will be presented in this study will be supported by economic, financial and statistical analysis techniques. Past studies have demonstrated that shadow banking operations affect traditional banking systems that are regulated (Tatarenko, 2017). The research outcome of this study is expected to provide an extensive understanding of the global shadow banking systems and a comparison of the regular and shadow banking systems using core risk coefficients.
Shadow banking is related to international business as it affects traditional banking. The effect of shadow banking on traditional banks may result in fragility of the entire financial system. Further, studies show that shadow banking has immediate consequences on the non-financial section of the international business economy. The hypothesis that may be accepted or rejected in this research is, ‘being an essential component of the international financial system, the shadow banking system could radically affect greater economic and financial dynamics’. It is assumed that there are positive impacts of assets under the management of money market funds and repo transactions on the entire banking assets (Gabrieli, Pilbeam, & Shi, 2018). The study expectations are determined by the increasing reliance of banking systems on financial intermediaries which includes money market funds to finance their investment activities. Additionally, it is assumed that a higher GDP enhances growth that also improves consumer demand and the trade volume. The increased trade volume encourages people to borrow loans which increases the total banking assets. Therefore, it is expected that shadow banking affects the economic dynamics and other financial variables involved in estimating the growth of global economies.
References
Gabrieli, T., Pilbeam, K., & Shi, B. (2018). The impact of shadow banking on the implementation of Chinese monetary policy. International Economics and Economic Policy, 15(2), 429-447.
Tatarenko, A. V. SHADOW BANKING’S INFLUENCE ON FINANCIAL STABILITY OF DEVELOPED COUNTRIES (THE USA AND EURO AREA COUNTRIES).