Off the Radar: Factors behind the Growth of Shadow Banking in Europe

What Drives Shadow Banking in the New EU Member States? Empirical Panel Cointegration Approach

“…In these economies, shadow banks provide alternative funding where traditional banking is not able to do so. These results are entirely consistent with those of Hodula (2018) for almost the same group of countries where this determinant was statistically significant and had a positive sign with a value of 2.24. Such significant differences could be explained by the rapid growth of the financial sectors in the selected group of countries, accompanied by the asset growth of other financial institutions and a more intensive use of securitised products.…”

“…In this context, several variations of these determinants, such as the annual growth rate of the real GDP, the growth of income per capita, etc., are well known in the literature. However, the real GDP growth rate is by far the most common macroeconomic determinant, used, for example, by Duca (2016), Malatesta, Masciantonio and Zaghini (2016), and Hodula, Melecky and Machacek (2017). Bearing in mind the procyclicality hypothesis Adrian and Shin (2009) and studies of Duca (2016) and Malatesta et al (2016), we expect a positive and significant impact of the real GDP growth.…”

“…This result is not surprising as insurance companies provide protection against financial loss and subscribe collateralised debt obligations to invest their cash. Moreover, the insurance companies invest in securities issued in the shadow credit intermediation process, such as asset-backed commercial papers, assetbacked securities, and collateralised debt obligations (Hodula, 2018).…”

COVID-19 outbreak, government capital injections, and shadow banking efficiency

“…There is the reason why we focus only on the issue of government capital injections. Finally, Hodula (2020) indicates that EU shadow banking is highly procyclical, owing to the positive relationship with real GDP growth. From the standpoint of the COVID-19 outbreak, shadow banking activities might deteriorate in the off-balance-sheet banking system, which harming or helping the balance-sheet banking system becomes a crucial issue (Hodula 2020).…”

“…Finally, Hodula (2020) indicates that EU shadow banking is highly procyclical, owing to the positive relationship with real GDP growth. From the standpoint of the COVID-19 outbreak, shadow banking activities might deteriorate in the off-balance-sheet banking system, which harming or helping the balance-sheet banking system becomes a crucial issue (Hodula 2020). Most recent studies on government capital injections and shadow banking have focused on the impacts on the macro-banking system and the microbank behaviour (e.g.…”