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Henry N. Butler and Jonathan Klick
According to the report released by the Financial Stability Board (FSB) in November 2011, shadow banking is defined as ‘credit intermediation involving entities and activities outside the regular banking system’. Put differently but simply, shadow banking is the realm of lending that does not rely on deposit-taking banks using customer money to fund loans. The International Monetary Fund (IMF) defines the shadow banking system as ‘off-balance-sheet and non-bank financial intermediation’ including Internet finance, micro-lending, asset securitization and some wealth management products. ‘Shadow banks’ in the context of Western countries refer to buy-out firms, hedge funds, venture funds and ordinary corporations which are using their investors’ money and wholesale funding to hire disgruntled bank traders, engage in direct lending and escape traditional banking regulation. In more advanced economies, shadow banking remains a key channel of credit intermediation that complements the formal banking system.
Claudio Borio and Anna Zabai
We explore the effectiveness and balance of benefits and costs of so-called ‘unconventional’ monetary policy measures extensively implemented in the wake of the financial crisis: balance sheet policies (or ‘quantitative easing’), forward guidance and negative policy rates. We reach three main conclusions: there is ample evidence that, to varying degrees, these measures have succeeded in influencing financial conditions even though their ultimate impact on output and inflation is harder to pin down; the cost-benefit balance is likely to deteriorate over time; and the measures are generally best regarded as exceptional, for use in very specific circumstances. Whether this will turn out to be the case, however, is doubtful at best and depends on more fundamental features of monetary policy frameworks. We also provide a critique of prevailing analyses of ‘helicopter money’ and explore in more depth the role of negative nominal interest rates in our fundamentally monetary economies, highlighting some risks.