The role of shadow banking in systemic risk in the European financial system

Carlo Bellavite Pellegrini; Peter Cincinelli; Michele Meoli; Giovanni Urga

doi:10.1016/j.jbankfin.2022.106422

The role of shadow banking in systemic risk in the European financial system

Carlo Bellavite Pellegrini^*, Peter Cincinelli^*, Michele Meoli, Giovanni Urga

^*Corresponding author

Research output: Contribution to journal › Article

Abstract

We study how the characteristics of different financial institutions relate to systemic risk using the ACoVaR measure of Adrian and Brunnermeier (2016). We contrast traditional banks with shadow entities, such as Money Market Funds and Finance Services, using a sample of 476 European financial institutions between 2006 and 2015. We find that systemic risk increases significantly in the size of large financial institutions, particularly Money Market Funds, while it is insensitive to the size of Finance Services. We also find that Finance Services are particularly sensitive to proxies for market risk. For traditional banks, their reliance on short term wholesale funding is a key determinant of their contribution to systemic risk. (c) 2022 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	1-16
Number of pages	16
Journal	JOURNAL OF BANKING & FINANCE
Volume	138
DOIs	https://doi.org/10.1016/j.jbankfin.2022.106422
Publication status	Published - 2022

Keywords

CoVaR
Financial crisis
Panel data
Shadow banking
Systemic risk

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10.1016/j.jbankfin.2022.106422

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title = "The role of shadow banking in systemic risk in the European financial system",

abstract = "We study how the characteristics of different financial institutions relate to systemic risk using the ACoVaR measure of Adrian and Brunnermeier (2016). We contrast traditional banks with shadow entities, such as Money Market Funds and Finance Services, using a sample of 476 European financial institutions between 2006 and 2015. We find that systemic risk increases significantly in the size of large financial institutions, particularly Money Market Funds, while it is insensitive to the size of Finance Services. We also find that Finance Services are particularly sensitive to proxies for market risk. For traditional banks, their reliance on short term wholesale funding is a key determinant of their contribution to systemic risk. (c) 2022 Elsevier B.V. All rights reserved.",

keywords = "CoVaR, Financial crisis, Panel data, Shadow banking, Systemic risk, CoVaR, Financial crisis, Panel data, Shadow banking, Systemic risk",

author = "{Bellavite Pellegrini}, Carlo and Peter Cincinelli and Michele Meoli and Giovanni Urga",

year = "2022",

doi = "10.1016/j.jbankfin.2022.106422",

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TY - JOUR

T1 - The role of shadow banking in systemic risk in the European financial system

AU - Bellavite Pellegrini, Carlo

AU - Cincinelli, Peter

AU - Meoli, Michele

AU - Urga, Giovanni

PY - 2022

Y1 - 2022

N2 - We study how the characteristics of different financial institutions relate to systemic risk using the ACoVaR measure of Adrian and Brunnermeier (2016). We contrast traditional banks with shadow entities, such as Money Market Funds and Finance Services, using a sample of 476 European financial institutions between 2006 and 2015. We find that systemic risk increases significantly in the size of large financial institutions, particularly Money Market Funds, while it is insensitive to the size of Finance Services. We also find that Finance Services are particularly sensitive to proxies for market risk. For traditional banks, their reliance on short term wholesale funding is a key determinant of their contribution to systemic risk. (c) 2022 Elsevier B.V. All rights reserved.

AB - We study how the characteristics of different financial institutions relate to systemic risk using the ACoVaR measure of Adrian and Brunnermeier (2016). We contrast traditional banks with shadow entities, such as Money Market Funds and Finance Services, using a sample of 476 European financial institutions between 2006 and 2015. We find that systemic risk increases significantly in the size of large financial institutions, particularly Money Market Funds, while it is insensitive to the size of Finance Services. We also find that Finance Services are particularly sensitive to proxies for market risk. For traditional banks, their reliance on short term wholesale funding is a key determinant of their contribution to systemic risk. (c) 2022 Elsevier B.V. All rights reserved.

KW - CoVaR

KW - Financial crisis

KW - Panel data

KW - Shadow banking

KW - Systemic risk

KW - CoVaR

KW - Financial crisis

KW - Panel data

KW - Shadow banking

KW - Systemic risk

UR - http://hdl.handle.net/10807/230980

U2 - 10.1016/j.jbankfin.2022.106422

DO - 10.1016/j.jbankfin.2022.106422

M3 - Article

SN - 0378-4266

VL - 138

SP - 1

EP - 16

JO - JOURNAL OF BANKING & FINANCE

JF - JOURNAL OF BANKING & FINANCE

ER -

The role of shadow banking in systemic risk in the European financial system

Abstract

Keywords

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