Fed research: Three channels of shadow banking fragility
Working paper identifies the sources of fragility in the shadow banking sector
A working paper published by the Federal Reserve models the interaction of shadow and traditional banking sectors, identifying three channels through which shadow banks make the system more fragile.
Author Francesco Ferrante writes in A model of endogenous loan quality and the collapse of the shadow banking system that shadow banks "played a crucial role in making the whole banking sector more fragile", in the run-up to the 2008 financial crisis.
Ferrante's model assumes shadow banks are able to
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