Regulating the Shadow Banking System | Institute for New Economic Thinking

Regulating the Shadow Banking System | Institute for New Economic Thinking

One way to think about shadow banking is that it is just the mirror image of this new-line asset management strategy. Shadow banks bought risky bonds, but sold off the risk exposure using derivatives, and funded the portfolio in wholesale money markets. The key point is that the division of old-line asset management into new-line management on the one hand, and shadow banking on the other, showed up statistically as a simultaneous increase in the demand and supply of money.