Determinants of shadow banking growth: evidence from emerging markets

Abstract

This study places a primary emphasis on shadow banking as an unregulated subset of the broader financial system. Shadow banking can be identified by its growing importance in the nations of Emerging Markets, as well as by its trend toward more rapid expansion in recent years. Shadow banking can be a considerable contributor to overall systemic risk, despite the fact that it makes a significant contribution to the actual economy by offering alternate sources of liquidity and alternative capital. The purpose of this study is to investigate the link between selected macroeconomic and financial variables and the extent of the shadow banking system in eleven emerging nations over the period of 2002-2021 using a yearly dataset. Specifically, the panel corrected standard errors will be utilized to analyze the data. The empirical findings demonstrate that the growth of banks, search for yield, demand from institutional investors, and bank regulations are the key factors affecting the growth of Non-bank Financial Intermediation (or Shadow Banking), which adheres to stringent regulatory standards, refrains from supporting. Our research intends to draw attention to the risk that a more excellent orientation toward strengthening the bank's capital requirements will lead to a further expansion of activities in the non-banking part of the financial sector beyond the sight of the regulators, as well as the need to identify the challenge of making this less regulated part of the financial system more stable and sustainable. These are the overarching goals of my research.