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

Hodula, Martin; Melecky, Ales; Macháček, Martin

doi:10.1016/j.ecosys.2020.100808

Cited by 27 publications

(14 citation statements)

References 29 publications

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“…A more recent study by Apostoaie and Bilan (2020) provides consistent results with the papers mentioned above and notes that money market interest rate, growth of the traditional banking sector, overall liquidity and economic conditions and higher institutional demand have a positive influence on the NBFI sector. Another recent study by Hodula et al (2020) reveals the positive effect of strict regulations on banks, financial development and institutional demand on NBFI assets.…”

Section: Literature Reviewmentioning

confidence: 98%

Asymmetric effects of monetary policy on non-bank financial intermediation (NBFI) assets: a panel quantile regression approach

Isayev

Irani

Attarzadeh³

2023

JES

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PurposeThe purpose of this paper is to fill the momentous gap by explicitly investigating the asymmetric effects of monetary policy (MP) on non-bank financial intermediation (NBFI) assets.Design/methodology/approachThe authors utilized panel data from 29 countries for the period of 2012–2020 and used the quantile regression estimation. In addition to simultaneous quantile regression (SQR), the authors also employ quantile regression with clustered data (Parente and Silva, 2016) and the generalized quantile regression (GQR) method (Powell, 2020).FindingsThe empirical results show a significant heterogeneous impact of MP. While there is a positive relationship between MP and NBFI assets (“waterbed effect”) at lower quantiles of NBFI assets, at middle and higher quantiles, MP has a negative impact on NBFI assets (“search for yield” effect). The authors further find that negative impact strengthens as the quantile levels of NBFI assets rise from mid to high. Findings also reveal that “procyclicality” (except higher quantile) and “institutional demand” hypotheses hold. However, regarding “regulatory arbitrage,” mixed results are observed indicating the impact of Basel III requirements.Originality/valuePrevious empirical studies have concentrated on either the Dynamic Stochastic General Equilibrium (DSGE) framework or conditional mean regression approaches and delivered mixed findings of the MP effects on NBFI. The current paper takes a step toward dealing with this issue by deploying quantile regression methodology, which shows the impact of MP on NBFI at different conditional distributions (quantiles) of NBFI assets instead of just NBFI's conditional mean distribution.

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Section: Literature Reviewmentioning

confidence: 98%

Asymmetric effects of monetary policy on non-bank financial intermediation (NBFI) assets: a panel quantile regression approach

Isayev

Irani

Attarzadeh³

2023

JES

View full text Add to dashboard Cite

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“…Less regulated segments are generally more sensitive to market shocks. As such, the combination of highly accommodative monetary policy and more stringent capital regulation may not only stimulate growth of "shadow banking" (Goda et al, 2013;Hodula, 2019;Hodula et al, 2020;Lysandrou, 2014), but also increase demand for nonbank loans in the private nonfinancial sector (Hodula, 2019).…”

Section: Increased Credit Growth and Leverage Of Banks And Nonbank Fi...mentioning

confidence: 99%

“…18 A prolonged period of low interest rates may accelerate the shift from a banking-based financial system toward capital markets. Low profitability and increasingly stringent banking regulation encourage and speed up the shift of financial resources from banks to less regulated segments (Hodula et al, 2020). Those segments are generally more exposed to common asset holdings, high concentration, and correlated risks, that is, they are more sensitive to market shocks and repricing of risks (ESRB, 2016b).…”

Section: High Interconnectedness and Exposure Concentrationmentioning

confidence: 99%

“…For instance, a combination of more demanding macroprudential policy and a prolonged period of low interest rates may incentivize a shift of activities toward nonbank financial institutions, which are less regulated. For instance, Hodula et al (2020) find that growth of EU nonbank financial institutions is positively related to more stringent capital regulation. In addition, they show that the relationship between monetary policy and growth of nonbank financial institutions is level-dependent, with the relationship being positive if interest rates are low.…”

Section: Interactions With Prudential Regulationmentioning

confidence: 99%

“…For instance, Hodula et al. (2020) find that growth of EU nonbank financial institutions is positively related to more stringent capital regulation. In addition, they show that the relationship between monetary policy and growth of nonbank financial institutions is level‐dependent, with the relationship being positive if interest rates are low.…”

Section: Consequences For Monetary Policy Transmissionmentioning

confidence: 99%

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A prolonged period of low interest rates in Europe: Unintended consequences

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Bajzík

Ehrenbergerová

et al. 2022

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We examine the potential adverse effects of a prolonged period of low interest rates on financial stability from multiple perspectives. First, we provide a unique comparison of natural rates of interest estimated using two approaches—with and without financial factors—for six large European countries inside and outside the euro area. Second, we provide a comprehensive review of the empirical literature, allowing us to identify and categorize financial vulnerabilities, which may be created and fueled by low interest rates. Third, we discuss a situation in which a prolonged period of low interest rates may lead to a point of no return by contributing to higher indebtedness, overvalued asset prices and underpriced risks, resource and credit misallocation, and lower productivity. With respect to all of that, we offer a few monetary policy considerations. Specifically, we suggest that (i) monetary policy should act symmetrically over the medium to long term, (ii) both the short‐term and long‐term costs and benefits of pursuing accommodative or restrictive monetary policy should be accounted for, and (iii) monetary and macroprudential policies need to be coordinated, and their interactions should be accounted for in order to find the best policy mix for the economy.

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Unraveling the interplay of financial inclusion, stability, and shadow banking in emerging markets

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

Cited by 27 publications

References 29 publications

Asymmetric effects of monetary policy on non-bank financial intermediation (NBFI) assets: a panel quantile regression approach

Asymmetric effects of monetary policy on non-bank financial intermediation (NBFI) assets: a panel quantile regression approach

A prolonged period of low interest rates in Europe: Unintended consequences

Unraveling the interplay of financial inclusion, stability, and shadow banking in emerging markets

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