Shadow Banking

Tobias ADRIAN Federal Reserve Bank of New York.

Adam ASHCRAFT Federal Reserve Bank of New York.

Hayley BOESKY Federal Reserve Bank of New York.

Zoltan POZSAR Federal Reserve Bank of New York.

The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation. Within the market-based financial system, “shadow banks” have served a critical role. Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees. Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, structured investment vehicles (SIVs), credit hedge funds, money market mutual funds, securities lenders, limited purpose finance companies (LPFCs), and the government-sponsored enterprises (GSEs). Our paper documents the institutional features of shadow banks, discusses their economic roles, and analyzes their relation to the traditional banking system. Our description and taxonomy of shadow bank entities and shadow bank activities are accompanied by “shadow banking maps” that schematically represent the funding flows of the shadow banking system.