Discussion — Reading 11: Shadow Banking

This session covers Reading 11: Bagehot Was a Shadow Banker: shadow banking, Central Banking, and the Future of Global Finance by Mehrling, Pozsar, Sweeney, and Neilson (2014)

NOTE: The above link is the final published 2014 version of the paper instead of the 2013 version included in the Coursera materials. Mehrling says that this paper supersedes the content from Lecture 21.

The paper covers much of the same material as Lecture 21. A big thing that it adds to the lecture is the comparison to Bagehot's 19th-century gold-standard world, which we learned about in Lecture 9, Lecture 15, and the Walter Bagehot Lombard Street reading.

From the course website:

"The authors of this reading came together around a mutual sense that much of the existing literature and conversation was missing essential features of the emerging market-based credit system, simply because it was too bound to an old-fashioned Jimmy Stewart conception of banking. To most people, shadow banking seemed like a consequence of regulatory arbitrage, if not outright fraud, which is to say something that should never have been allowed and should now be suppressed. The Shadow Banking Colloquium started from a very different place, imagining a world in which all banking was shadow banking, and then asking how such a world would work, and how it might best be regulated. Our team included voices from banking, central banking, and academia, and we set ourselves the task of finding a simple framework that made sense to all of us, coming from our different worlds. If we could find a common language, maybe that language would also serve as a common language for others, and so it has proven to be the case."

Study Questions

Shadow Banking Discussion Thread