Discuss the contribution of shadow banking to the 2008 financial crisis.

Expert Solution

Shadow banking means process of creation of credit across the global financial system through unregulated activities by regulated institutions.The shadow banking plays a major role in the expansion of housing credit in 2008 financial crisis and has escaped government oversight since then.This banking system consists of lenders,brokers and various other credit intermediaries which does not fall in regulated banking.Since such bank is unregulated they don't the risk of liquity and capital restrictions which contribute significantly during 2008 financial crisis.Because of non regulatory in nature this banking system increased the flow of funds in 2008 financial crisis and helps in coming out of 2008 financial crisis.Since because of freedom in operation institutions have been able to pursue higher market,credit, liquidity risk in their lending without having any obligation of maintaining requisite capital requirement.

jeff jeffy answered 1 year ago

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