Why does shadow credit intermediation exist?

Post date: Jun 23, 2013 12:02:52 PM

There is an excellent survey on the literature of shadow banking by Adrian and Aschcraft (2012). According to them, there are three motivations for the growing importance of shadow banking.

"1) innovation in the composition of aggregate money supply

: the shadow credit intermediation = financial innovation in the composition of aggregate money supply (Gorton and Metrick (2012))

2) capital, tax, and accounting arbitrage

: See Pozar, Adrian, Ashcraft, Boesky (2010) for functional analysis of market-based credit intermediation, Acharya, Schnabl, and Suares (2013) for ABCP market.

3) other agency problems in financial markets"

However I don't agree the third explanation.