The main argument in this study is that shadow banking has replaced traditional banks' role in credit markets, and it became a crucial factor in detemining credit and funding conditions in the U.S. This role increases access to low cost funding, and determines credit expansion. However, shadow banking is more fragile relative to traditional banking, as (1) shadow banking depends on short-term funding, and (2) this system does not have backstops similar to traditional banking. In this research, I used total financial assets of shadow banking, and overall borrowing/lending in repo and securities lending (or securities financing) market as two different proxies of shadow banking, and total loans of commercial banks, term spread and risk premium for credit and funding conditions. In the empirical investigation, I applied two Markov-switching (MS) models, and impulse-response analysis based on a vector-autoregressive model.
I have completed the first draft of this research with the aggregate data of the Federal Reserve's Financial Accounts of the U.S., and Primary Dealers statistics of the New York Fed. MS models in this study presented two different regimes of bank lending. Shadow banking contributes to bank lending through non-bank lending and securitization in expansions phases, yet decelerates bank lending in contraction phases as shadow banks' liquidity needs increase. In a related investigation, the impulse-response analyses show that a positive shock on lending in securities financing market has a negative effect on term spread and positive effect on risk premium. Thus, lending activities in securities market (1) undermines its own financial sustainability in securities financing market, and (2) determines funding conditions for the rest of the economy.
https://www.elgaronline.com/view/journals/roke/5-3/roke.2017.03.07.xml
The economic crisis of the eurozone emerged after the subprime mortgage crisis of the US; and since then the fiscal profligacy of some member countries, primarily Greece at the outset, was seen as the root of the crisis. However, alternative approaches pointed to the current-account imbalances within the eurozone, and the flaws in the architecture of the eurozone system. In this study, based on the argument that these flaws and resulting trade imbalances had been responsible for a credit-fueled asset-price speculation among deficit countries, we aim to establish empirically the close association of asset-price growth with credit creation. As imbalances continued, asset prices grew dependent on credit expansion, and once it was disrupted, the collapse came. For our purpose, we examine the impacts of credit expansion on asset prices and use dynamic panel estimations for eleven countries in the eurozone over the period 1990–2011. We find that the credit expansion and asset prices are closely associated in countries with chronic trade deficits whereas no significant correlation is observed for countries with trade surpluses.
https://panoeconomicus.org/index.php/jorunal/article/view/26
By considering the manufacturing pay inequality index as a proxy for overall income inequality and a novel index for the informal economy, this study analyzes the relationship between income inequality and the size of the informal economy in Turkey for the first time during the period of 1963-2008. For this purpose, we employ a time-series analysis with the Johansen cointegration test, a vector error correction model and the Granger causality tests. The findings suggest that while an increase in income inequality and foreign trade competitiveness leads to an expansion of the informal sector, unemployment has negative effects on the informal sector.
https://www.tandfonline.com/doi/abs/10.1080/09538259.2012.729928
The paper reports that no statistically significant empirical relationship can be shown between total bank credit and the US broad money supply in the period after 1995. It argues that the growing prevalence of non-bank deposits in the form of mutual money market funds and asset securitization are the main culprits for this result. Prior to financial liberalization, the connection between total bank credit and broad money supply was simple enough: new bank deposits were created when banks made loans and were extinguished when loans were paid back. In banks' consolidated balance sheet, total deposits made up total liabilities and were basically equal to the broad money supply. However, in the age of financial liberalization not all deposits bank loans created returned as deposits, whether in banks or non-banks, as deposits could be swapped for non-deposit liabilities without a corresponding draw down on the asset side. Moreover, loans could be extinguished in banks' balance sheets through asset securitization.
https://onlinelibrary.wiley.com/doi/abs/10.1111/ajes.12030
This article asks whether the process of financial globalization and its recent crisis can be explained by Karl Polanyi's notion of the double movement and argues, in tune with this notion, that capitalist market relations depend on certain institutional arrangements and yet the development of the market forces deteriorates these institutions' arrangements to such extent that even the “capitalist business itself had to be sheltered from the unrestricted working of the market mechanism” (Polanyi 1944: 193).