Financial crises and shadow banks: A quantitative analysis

Arbeitspapier

Motivated by the build-up of shadow bank leverage prior to the financial crisis of 2007-2008, I develop a nonlinear macroeconomic model featuring excessive leverage accumulation and endogenous financial crises to capture the observed dynamics and to quantify the build-up of financial fragility. I use the model to illustrate that extensive leverage makes the shadow banking system runnable, thereby raising the vulnerability of the economy to future financial crises. The model is taken to U.S. data with the objective of estimating and analyzing the probability of a run in the years preceding the financial crisis of 2007-2008. According to the model, the estimated risk of a run was already considerable in 2005 and kept increasing due to the upsurge in leverage. Using counterfactual scenarios, I assess the impact of alternative monetary and macroprudential policy strategies on the estimated build-up of financial fragility.

Object Details

• ISBN: 978-3-95729-883-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 15/2022

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: Financial crises ; leverage ; credit boom ; nonlinear estimation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Rottner, Matthias
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/259004
• Last update: 10.03.2025, 11:41 AM CET