The Economics of Shadow Banking

By: Manmohan Singh

The couple of decades leading up to the Lehman crisis in 2008 witnessed rapid growth in financial intermediation whereby non-banks interact with banks. Coined under the rubric of shadow banking, the banknon-bank nexus is largely seen as a form of regulatory arbitrage. However, this is an incomplete view, since there is genuine economic demand for such services. This chapter11Written for the Reserve Bank of Australias Funding and Liquidity Conference, Sydney (August 2013).attempts to explain the

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