1st Paper - Shadow Banking - Zeinab

Shadow Banking System: A complement to other
regular financial institutions?

Evidence from International Data
This version: December 2017
Abstract
We empirically examine the linkage of the shadow banking system and other financial
institutions using a sample of 29 countries over the period 1990 to 2013. We perform country-
by-country examination for the correlation between the new banking system and other regular
financial sectors mainly banks and institutional investors. We use total financial assets of
other financial intermediaries and financial auxiliaries to account for the size of shadow
banking system. Our findings suggest that even though the shadow banking system is
different across countries, the correlation between the financial institutions is generally
common. These results generally confirm the complementary theory of the shadow banking
system. The shadow banking system is present in the financial system to complement and not
to substitute the activities of existing financial sectors mainly the regular banking sector
Moreover, it endorses the fact that banks’ sponsorship of shadow banking activities increased
the linkage. This study suggests that the shadow banking system should be considered as the
new parallel system; a system which is a complement to and not a substitute for other
financial institutions.
JEL Classification Codes: E51, G21, G23
Keywords: Shadow banking system, Traditional banking, Insurance corporations and pension
funds, Bank regulation, International banking
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Introduction .1
“A further worry is the migration of new market and liquidity risks to the “shadows” of the
financial world. This is part of the less-regulated, nonbank sector, which is growing rapidly
in some countries. In the United States, for example, shadow banking is now considerably
larger than the traditional banking system; in Europe, it is roughly half the size; and in
China, at 25-35 percent, it is the fifth largest shadow banking sector in the world. Of course,
nonbank activities can complement the banking sector in financing the economy in important
ways. Yet, the opaqueness of these activities warrants heightened vigilance.”
Christine Lagarde, Managing Director of the IMF (Oct 2014)
Traditional banks fund their loans with deposits they collect from their depositors.
However, the demand for funds has increased; subsequently, banks started to issue bonds. By
increasing their resources and lending capacity, banks became more capable of meeting their
costumers’ needs. Moreover, after banks’ engagement in maturity transformation; where their
credits are made for longer maturities than their resources, the banking system became fragile
and unstable. To ensure the stability of the banking system, many rules have been established
such as deposit insurance, governmental last resort support, discount window lending, and
prudential supervision.
The last global financial crisis has revealed the existence of an unordinary system which is
participating in financing the global economy. This system is called the shadow banking
system. The shadow banking system can be defined as the unregulated financial
intermediation outside the traditional banking system. It consists of all non-bank financial
institutions and activities. Unlike the traditional banking system, they do not have a direct
access to deposit insurance or governmental last resort support. The shadow banking is also
not subject to prudential supervision like banks. The shadow credit intermediation process is
different from the regular process of the traditional banking system. In banks, the entire
process of credit intermediation takes place within the walls of one single institution.
Conversely, shadow credit intermediation is performed through a chain of many non-bank
financial intermediaries in a multistep procedure. Shadow banking mainly relies on
securitization and wholesale money markets (Pozsar et al. 2010).
Despite its role as a funding source in the financial system, it has also played an essential
part in the last financial crisis. In details, these institutions don’t take deposits from the public;
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accordingly they are not treated by authorities as banks. Henceforth, they are not subject to
traditional banking regulations, and their activities are not protected by central banks. This
lack of regulations encouraged the shadow banking system to undertake excessive risks. In
time of distress, the shadow banking system is considered fragile. Due to its fragile nature, the
shadow banking collapsed in the last financial crisis. During the crisis, most of the shadow
banking activities stopped (Tobias et al 2012). Gorton et al. (2012) believed the last financial
crisis was nothing but a run in the repo market. As of 2008, regulatory authorities tried
implementing new financial reforms. These financial reforms were mainly related to
monitoring the shadow banking system. According to these authorities, the adoption of new
regulations is necessary to control this new banking system and reduce, as much as possible,
the risks associated with it.
The growth of the shadow banking outside the formal and regulated known sector has
exploded, and will still explode as long as the public bought the notion that such funding
instruments were just “as good as” bank deposits (McCullay, 2009). The size of the global
shadow banking system has reached about $80 trillion in 2014 (FSB, 2015). That is a 5
trillion more than its size in 2014. However, this number is only a proxy for the size of the
global shadow banking system. As this system works in the shadows, it is very difficult to
find a precise single definition of the shadow banking system. Consequently, we can only
have a proxy for its size and not a very accurate one.
In this paper, we generally aim at providing a better understanding of the nature of the
relationship between the shadow banking system and the traditional banking sector. In details,
we examine the linkage of the shadow banking system and other financial institutions in 29
developed and emerging countries. On one side, we have the shadow banking system and on
the other side, we have both the traditional banking system and institutional investors. We
find that across most of the countries, there exists a significant and positive relationship
between the growth rate of the shadow banking system and the growth rate of traditional
banks and insurance corporations and pension funds. This indicates that the shadow banking
system is not replacing the activities of banks and the rest of the financial system. Conversely,
it can be considered as a complement. An important explanation of our results is that; in
addition to their regular activities, banks are sponsoring most of the shadow banking
activities. Hereafter, the shadow banking system can be viewed as an additional source of
diversification in the financial system.
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Our paper contributes to the existing literature on the shadow banking topic. Previous
studies theoretically discussed the existing linkage between the shadow banking system and
other financial institutions. However, this paper is considered one of the few attempts to
empirically examine this linkage. In addition, this study is based on international evidence as
we have 29 different countries. This study is based on two main research questions: (i) is
shadow banking system a “complement to” or a “substitute for” other regular financial
systems? (ii) Are those results consistent among all the countries?
This paper is organized as follows; section 2 offers a review on the literature related to (i)
the shadow banking topic in general; (ii) the linkage between the shadow banking system and
other financial institutions; and finally (iii) shadow banking as the new parallel system.
Section 3 discusses the data, methodology, databases, and variables used. The obtained results
are discussed in section 4. Finally, section 5 concludes.
2. Related Literature
2.1. About the shadow banking system
The term “shadow banking system” has been used extensively after the global financial
crisis in 2007/2008. The term was first introduced by Paul McCulley, a former managing
director at PIMCO, in August 2007 at the Fed’s annual symposium in Jakson Hole. He
described the shadow banking system as "the whole alphabet soup of levered up non-bank
investment conduits, vehicles, and structures." (McCullay, Teton Reflections, 2007, p. 1)
In the literature, many definitions of the shadow banking system were introduced.
However, a single unique definition has not been settled yet. Pozsar et al. (2010) defined
shadow banks as “the financial intermediaries that conduct maturity, credit, and liquidity
transformation without access to central bank liquidity or public sector credit guarantees”.
(Pozsar et al., 2010, p. 1).
Financial stability board (FSB) is considered one of the main developers of the new
reform plans and frameworks for regulating the shadow banking system. In their first shadow
banking report (April 2011), in response to the request of G20 (FSB, 2011), FSB categorized
the possible areas that should be covered by regulations. FSB defined the shadow banking
system as the system that includes all entities outside the regulated banking system that
perform credit intermediation. Moreover, FSB then provided a narrower definition whereby
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they focused on the ability of the shadow banking system to raise systemic risk and regulatory
arbitrage concerns. (FSB, 2011)
In 2013, Acharya et al. proposed a simple definition, where “shadow banking is that part
of the intermediation sector that performs several functions that we traditionally associate
with commercial and investment banks, but which runs in the “shadow” of the regulated
banks in that it is off-balance sheet and less regulated”. Harutanyan et al. (2015) introduced
the noncore liabilities definition. According to this study, the shadow banking system
constitutes financing of banks and non-bank financial activities through non-core liabilities.
For example, securitization; which is creating new financial instruments by combining many
financial assets together and the selling different tiers of this newly created instrument to
different investors, is considered a shadow banking activity no matter where it is conducted.
Hence, based on this definition, we can define the shadow banking system as all non-
traditional financial intermediation with non-traditional funding sources.
The literature and studies performed on the shadow banking topic suggest that the shadow
banking as a complement to the financial system, shadow banking as a result of the search-
for-yield effect, and shadow banking as a result of regulatory arbitrage contributes to the
growth of the shadow banking system. First, the growth of the shadow banking system can be
driven by the markets’ requirement of new players in the financial system. In other terms, this
means that the existing systems need a complementary to meet higher demands.
The second factor that drives the growth of the shadow banking is the search-for-yield
effect. The investments made by the shadow banking system often offer attractive returns, but
they also have higher risks for investors. When investors are unsatisfied with the existing
yields offered in the market, they will start searching for other sources. In other terms, the
search-for-yield arises when government bond yields are often low and investors are seeking
more profitable assets, it is the shadow banking system that provides higher yielding assets
(IMF, 2014). In the US, Goda et al. (2013) explained that from 2002 till the time of the crisis
the US bond yields reached very low levels. This explains the rapid growth of the shadow
banking system around that time. Third, severe bank regulations encourage financial
institutions to avoid it by going through non-bank intermediation. In the context of regulatory
arbitrage, it is considered one of the dominant factors that have fed the rise of the shadow
banking system. Arbitrage is usually defined as the simultaneous buying and selling of certain
assets for a risk-free profit. However, regulatory arbitrage refers to the change the structure of
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an activity without altering the risk of that certain activity. In addition to this previous feature,
this new activity must generally generate a higher cash flow due to the reduced costs of
regulation on this activity (Adrian, 2014). The phenomenon of regulatory arbitrage, as a factor
that drives the growth of shadow banking, has been demonstrated by many researchers in this
field. Acharya et al. (2011) shows that regulatory arbitrage is considered as the main driver
for setting up ABCP conduits. Indeed, this paper argues that banks used shadow banking to
securitize the assets without transferring risks. Finally, Plantin (2014) has recently pointed out
that tighter capital requirement that spur the shadow banking activity is a clear example of the
regulatory arbitrage effect. Thus, we can contribute the development of shadow banks to the
increased possibility of regulatory arbitrage. Originally, banks are regulated and monitored to
ensure the stability of the financial system and the economy. To escape the high costs of
regulation, credit intermediation has rapidly moved to the shadow banks. As they are
unregulated, the development of shadow banking increases systemic risk and threatens the
financial stability in the economy.
A recent paper by Lysandrou et al. (2015) also demonstrates the above factors drove the
growth of the shadow banking before the crisis. According to the author, there exist two main
reasons for the sparking growth of the shadow banking system. The first reason consists of
two endogenous factors; regulatory arbitrage and financial innovation. The second one
consists of an exogenous factor which is the search-for-yield effect.
2.2. Linkage between shadow banking and other financial institutions
[Insert Figure 1 & 2 about here]
The linkage between the shadow banking system and the regular banking system is
considered one of the main issues studied by researchers in this field. On one side there is the
traditional banking system, a strictly regulated sector. On the other side, there is the shadow
banking system which is supposed to consist of unregulated non-bank activities outside the
regular banking sector. However, it appears that there exist high linkage channels between
both systems. Regular banks played an important part in the growth of the shadow banking
system by sponsoring it. Large financial institutions have fueled the growth of the shadow
banking system by being the first purchasers of the securitized products (Rajan, 2006; and
Acharya et al., 2010).
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Many researchers demonstrated the role played by commercial banks in sponsoring
securitization activities (Cetorelli et al., 2012). However, this sponsorship may also occur
indirectly. For example, Adrian et al. (2012) indicate that most of the shadow banking
activities was conducted under the sponsorship of bank holding companies, which in turn own
the regular commercial banks. Avraham et al. (2012) indicated that six of the seven largest
banking holding companies had over 1,000 subsidiaries each. Although some of these
mentioned subsidiaries are domestic and foreign banks, nearly most of them are non-bank
branches in the US. These non-bank subsidiaries consist mainly of funds, trusts, and other
financial vehicles.
Jeffers et al. (2013) discussed the deep interconnectedness between the shadow banking
system and the regular banking system. This paper analyzes the linkage between both systems
within the euro area, pre and post-crisis. According to the authors, these two systems are
linked through several channels. The main channels between both systems are: (1) Financing
provided by regular banks to the shadow banking system, and the opposite is true; (2)
Origination of securitized loans by the traditional banks; and (3) Regular banks investing in
products issued by the shadow banking system. The massive linkage between both systems
may increase systemic risks; which, in turn, will definitely affect the stability of financial
markets.
Fein (2013) considered that shadow banking exists as a fundamental part of the
conventional banking system. In addition, without the help and guidance of regular banks;
there would be no shadow banking system. Banks played a very important part (directly and
indirectly) in creating the shadow banking system. Most of the shadow banking activities and
entities are either sponsored or originated by the conventional banking system.
2.3. Shadow Banking as the new parallel banking system
Shadow banking as a complement is considered as a main driver for the growth of the
shadow banking system. According to this theory, shadow banking is not substituting but
complementing other systems in the financial system. When the supply of the traditional
banking system is not enough; a new source arises to meet additional demands. Thus, the
shadow banking system is not growing at the expense of banking activities. In fact, it is
growing to meet markets’ extra and new demand. In other terms, the need for the economical
role played by this system along with other financial institutions drove its growth. (IMF,
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2014, Sunderam 2013, Batchvarov, 2013, Arquie 2013). Duca (2015) empirically examined
how the shadow banking system is supplying credit. However, this study only focuses on
providing short and medium term credit to one type of business (non-financial corporations).
FSB (2012) declared that the shadow banking system is providing all market participants
and firms with an additional source of funding that can be added to bank loans. Furthermore,
the shadow banking system is increasing the liquidity available in the market. (Global
Shadow Banking Monitoring Report, 2012, p. 1). Mandel et al. (2012) provided a proof that
the traditional banking system is subsidizing the shadow banking system. In particular, they
explain the role played by banks in the securitization market. Likewise, European Systemic
Risk Board (ERSB), in their reply to the Green paper of the European Commission, has also
highlighted on the importance of services provided by the shadow banking sector. The ESRB
considers that this shadow banking system is a source of financial innovation, which will
increase efficiency and complete the financial markets. Moreover; there are some specific
services that traditional banks cannot and don’t offer, and it’s only offered by the shadow
banking sector. (ERSB, 2012).
In addition to previous studies, the Finance Ministry of the United Kingdom (HMT,
2012) considers that the shadow banking completes the traditional banking sector and plays as
an important role in credit intermediation. Hence, the shadow banking system can be viewed
as a central source of diversification in the financial world, which should be encouraged
instead of trying to eliminate. The UK Finance Ministry added that it would be a mistake to
interpret shadow banking activities as overly risky and overlook all their benefits. Batchvarov
(2013) argues that the term “the shadow banking system” should be changed into “the parallel
banking system” because this system is working in parallel to the traditional banking sector.
According to the author, it is very important not to underestimate the part this parallel banking
system is playing along with the traditional banking system. The shadow banking system
belongs to the complement part rather than the substitute one.
Finally, Gornicka (2016) proposed a theoretical model that explains the complementarity
of the shadow banking system. This paper suggests that an important subsystem of the
shadow banking system, which is off-balance sheet special finance vehicles (SPVs), can
become complements to the regular banking system under certain circumstances. Normally,
bank managers have the choice of buying risky assets through regulated banks or through
SPVs. However, their proposed theoretical model suggests that; even with higher capital
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requirements, bank managers chose to buy some of their risky assets through SPVs and not
through regulated banks. Yet, the bank must guarantee SPVs returns through the deposit
insurance advantage offered by government. To take advantage of these guarantees, bank
managers must conduct activities through regulated banks too. In this case, banks and shadow
banks can be considered as complements.
2.4. How this study fits into the literature?
This paper contributes to the existing literature on the shadow banking topic. As we saw
in the preceding related literature, previous studies theoretically discussed the linkage
between the shadow banking system and other financial institutions (mainly banks). However,
this paper is considered one of the first attempts to empirically examine this linkage. In
addition, this study is based on international evidence as we have 29 different countries.
3. Data and Methodology

3.1. Data
We use quarterly panel data for the period of 1990 - 2013 for each country. The sample
29 countries are as follows: Austria, Australia, Belgium, Canada, Estonia, the Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Korea,
Japan, Lithuania, Malta, Luxembourg, Netherlands, Norway, Portugal, Poland, Slovak
Republic, Slovenia, Sweden, Spain, the United Kingdom, and the United States. The
Eurozone sample includes the above mentioned countries except these 12 countries: Australia,
Canada, Czech, Denmark, Hungary, Japan, Korea, Norway, Poland, Sweden, the United
Kingdom, and the United States. Our data comes from many sources (IMF, Haver Analytics,
the national flow of funds data, OECD, Global surveys conducted by Barth, Caprio, and
Levine1).
3.2. Dependent variable
In this paper, the dependent variable is the shadow banking growth rate (SBS). This
variable comes mainly from the national flow of funds data (such as Haver Analytics, ECB,
and Financial Accounts of the United States). This variable is based on FSB’s broad definition
of the shadow banking system. This definition comprises all financial institutions that are not
See Barth, James R., Caprio, Gerard, Jr., and Ross Levine. 2013. "Bank Regulation and Supervision in 180 1
.Countries from 1999 to 2011." National Bureau of Economic Research Working Paper 18733
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listed as regular banks, central banks, public financial institutions, insurance corporations, and
pension funds. In details, for countries that have general flow of funds data, shadow banking
system refers to other financial intermediaries in addition to financial auxiliaries. However, it
might differ across other countries. In USA for example, shadow banking system includes
money market funds (MMFs), Government sponsored enterprises (GSEs), Asset backed
securities issuers (ABS), securities lending, repurchase agreements (repos), and open market
paper.
3.3. Variables of interest
Our main explanatory variables are the growth rates of other financial institutions
(banks and institutional investors2). Banks is used to examine the linkage between the shadow
banking system and banks. Banks refers to the growth rates of total assets of monetary
financial institutions. Simultaneously, IP is used to account for the linkage between the
shadow banking system and institutional investors. IP refers to the growth rate of the financial
assets of insurance companies and pension funds. These variables are generally extracted
from Haver Analytics, ECB, and the Financial Accounts of the United States.
3.4. Country-level control variables
We use some control variables to account for the variables that might have an impact on
the correlation between the shadow banking system and other financial institutions. The
control variables are as follows: real gross domestic product (rgdp), short term interest rate
(str), crisis dummy (crisis), banks’ capital stringency (capital stringency) and official
supervisory power (Supervisory power).
The first two macro-economic country-level variables are used in order to capture the
effect of economic development differences among countries on the linkage between shadow
banking and other financial institutions. These variables are extracted from OECD online
databases.
Crisis dummy takes the value of 1 when there is a systemic banking crisis in a certain
country in a certain quarter, it takes 0 otherwise. A banking crisis is considered systemic if
there is a significant sign of banking distress and banking policy interventions. This variable
is extracted from the systemic banking crisis database (Laeven et Valencia, 2012).
.In this study, instiutional investors include only insurance companies and pension funds 2
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To account for the different aspects of bank regulation and supervision, we include
banks’ capital stringency and official supervisory power as control variables. Both variables
are extracted from the four global surveys conducted by Barth, Caprio, and Levine in 1999,
2002, 2006, and 2011 (Barth et al. 2013). Capital stringency variable takes into account
whether the capital requirement reflects certain risks elements and takes certain market value
losses from capital before minimum capital adequacy is determined. In addition, it includes
whether certain funds can be used to originally capitalize the bank. This variable is a scaled
index that takes a value of 0 to 10 where higher values indicate greater stringency. The second
variable, official supervisory power, controls for the strength of supervisors in a bank. This
variable indicates whether the supervisory authorities have the authorities to take specific
actions to prevent and correct problems. It is a scaled index that takes a value of 0 to 14 where
higher values indicate greater power. These variables are used in order to detect the regulatory
arbitrage effect on the correlation between shadow banking system and other systems.
According to regulatory arbitrage; due to higher regulations and stringency, banks are
substituting their traditional banking activities with shadow banking activities.
3.5. Methodology
This study is mainly based on an overall study done in the Global Financial Stability
Report of IMF (2014). In this report, IMF studied the growth drivers of the shadow banking.
They used an empirical model that examines how some factors contribute to the growth of
shadow banking. In particular, it studies the extent to which shadow banking as a
complement, search-for-yield effect and regulatory arbitrage contribute to the growth of the
shadow banking system. We are most interested in the factor that account for the linkage
between the shadow banking and other financial institutions which is “shadow banking as a
complement for other financial institutions.” This factor is important to account for linkage
between the shadow banking system and the traditional banking sector. Moreover, it also
accounts for possible connections between shadow banking products and institutional
investors (insurance companies and pension funds). To make sure that the general results can
be adopted by most of the countries studied, we conduct a country-by-country regression for
the 29 countries. Afterward, we examine the correlation for the Eurozonewhole sample and
the Eurozone, respectively.. Finally, we examine the correlation for the whole sample.
To account for the linkage between the shadow banking system and other regular financial
institutions, we use the following equation:
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SBSjt = α1j + α2j BANKSjt + α3j IPjt + Xjt + εjt (1)
Where Xjt is a vector of control variables.
We use country-by-country simple linear regressions to capture the linkage between the
shadow banking and other systems in the financial system for each country. However, to
account for the same linkage for Euro-zone and the whole sample we use fixed effect (within)
regressions with Driscoll-Kray standard errors3. Driscoll-Kray standard errors are robust to
heteroscedasticity, autocorrelation, and cross-sectional dependency.
We use the following equations:
SBSjt = α1j + α2j BANKjt + Xjt +εjt (1)
SBSjt = α1j + α2j IPjt + Xjt + εjt (2)
SBSjt = α1j + α2j BANKSjt + α3j IPjt + Xjt + εjt (3)
Where Xjt is a vector of control variables.
To account for links between traditional banks and shadow banks, the first model includes
the growth of the size of banks (Eq. 1). On the other side, the growth of insurance
companies and pension funds was used to control for the demand for shadow banking
products from them (Eq. 2). The last model includes both, the growth rates of traditional
banks and institutional investors (Eq. 3).
4. Results
Our results are presented in Tables 1 to 5. These results will be discussed in subsections
4.1, 4.2 and 4.3. Subsequently, subsection 4.4 will discuss the results we obtained from the
the fixed effect (within) panel regressions we undertake.Our primary results are based on
three main models. In details, model (1) examines the linkage of shadow banking system and
regular banking system where we include the variable (BANKS) only. On the other hand, in
model (2) we only include variable (IP) in order to examine the linkage of shadow banking
system and institutional investors, mainly insurance companies and pension funds. Finally,
model (3) We use Eq. (1) that comprises of both previous models together where we include
both variables of interest (BANKS & IP). This model examines the linkage shadow banking
system and both financial sectors. First of all, we run the models with no control variables.
3
See Driscoll, John C., and Aart C. Kraay. 1998. “Consistent Covariance Matrix Estimation with Spatially
Dependent Panel Data.” Review of Economics and Statistics 80 (4): 549–60
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Second, we control for the macroeconomic development differences. Third and fourth, we
control for regulatory and supervisory aspects, respectively.
In general, a positive coefficient means that the shadow banking system is working in
parallel to other financial institutions. Alternatively, if the shadow banking system is acting as
a substitute to the existing financial systems we would expect to see negative coefficients.
Overall, we see that the correlation between shadow banking system and banks on one side
and insurance companies and pension funds on the other side is positive and significant across
most of the countries studied. We notice that the presence of negative and significant
coefficients is considered very rare in our results. This indicates that our results support the
complementarity theory of the shadow banking system.
Finally, to reinsure the robustness of our results; we estimate the previous models for
both (i) Euro-zone and (ii) whole sample. In details, we perform a fixed effect (within)
regression with Driscoll-Kray standard errors for both samples. In general we observe that
higher traditional banking sector and institutional investors’ growth rates are accompanied by
higher growth rates of the shadow banking system. This indicates that the shadow banking is
working in parallel to banks and institutional investors, mainly insurance companies and
pension funds in the growth of the shadow banking system. The following subsections
analyze the results for each set of regressions explained previously, in addition to the
robustness checks at the end.
4.1. Linkage between shadow banking system and other financial institutions?
Results of this section are presented in Table 1. We see that in model 1 (BANKS), which is
a variable controlling for the correlation between shadow banking system and regular banking
system, is positive and significant for most of the countries. These results suggest that shadow
banking system is working in parallel to the regular banking system. Similarly, in model 2 we
see that the variable capturing the linkage between shadow banking and insurance companies
and pension funds (IP) is also positive and statistically significant. Again, this indicates that
this new system is acting as a complement to the existing institutional investors, mainly
insurance companies and pension funds. Model 3 allows us to examine the same linkage
tested in models 1 & 2. Nevertheless in this model we test both linkages, with regular banking
and institutional investors, at the same time. We see the results are consistent with the results
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of the previous models. (BANKS) and (IP) are always both positive and statistically
significant.
]INSERT TABLE 1 ABOUT HERE[
Overall, before adding any control variables, we can say that the independent variables
(BANKS & IP) were generally positive and significant (Table 1). Out of the 27 26 countries,
the results of model 1 show that BANKS is positive and significant for 12 countries. Similarly,
IP is also positive and significant for 14 12 countries as shown in model the same table2. We
observe an absence of negative and significant results among all the countries that showed
significant results., and only BANKS in model 1 has a negative coefficient for only one
country (which is Finland). As for model 3, our results confirm the prior obtained results from
model 1 &2. Both dependent variables are mostly positive and significant.
In general, as higher traditional banking sector and institutional investors’ growth rates are
accompanied by higher growth rates of the shadow banking system; our finding supports the
complementarity theory of the shadow banking system. According to this theory, the shadow
banking system is present in the financial system to complement and not to substitute the
activities of existing financial sectors mainly the regular banking sector. (Sunderam, 2013;
Batchvarov, 2013; Arquie, 2013; IMF, 2014; Gornicka, 2016)
4.2. Controlling for economic development differences
To increase the reliability of our results, we then add control variables to account for
macroeconomic development differences that we believe might have an impact on the linkage
between the shadow banking system and other financial institutions. We include real gross
domestic product (rgdp), short term interest rate (str) and crisis dummy (crisis) to models Eq.
1, 2, &3. Results for models 1, 2, &3Results obtained are presented in tables 2, 3, &4
respectively. We see we got the same outcomes. BANKS and IP are positive for all the results
that showed statically significant coefficients.
[INSERT TABLE 2]
[INSERT TABLE 3]
[INSERT TABLE 4]
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We observe that when controlling for the macroeconomic variables, the general results are
unchanged. In details, the number of significant countries decreased, but the percentage of
significance remained approximately the same. (Table 14). For model 1 &2, the percentage of
significance of BANKS and IP decreased from 46% to 41% and from 50% to 44%
respectively. Likewise, for model 3; the The percentage decreased from 43% to 41% for
BANKS and increased from 43% to 47% for IP. Once again, the growth rates of the regular
financial sectors that is accompanied by higher growth rates of the shadow banking system
demonstrates the fact that shadow banking is an important new parallel system in the financial
system.
[INSERT TABLE 14 ABOUT HERE]
4.3. Controlling for regulatory and supervisory conditions
In this section, we add another set of control variables. We use banks’ capital
stringency (Capital Stringency) and official supervisory power (Supervisory Power) to
account for the different aspects of banking regulation and supervision. We decide to control
for these variables because of the importance of the role of regulatory arbitrage as one of the
main determinants of the shadow banking system as discussed in the theoretical literature
(Acharya et al., 2011; Plantin, 2014). Results for models 1, 2, &3of this section are are
presented in tables 53, 6, &7 respectively..
When adding the bank capital stringency, the coefficients of (BANKS) and (IP) show
positive sign for all the statistically significant results. We notice that unlike the
macroeconomic variables, when controlling for the regulatory aspects, the number of
countries that showed statistically significant coefficients increased. In details, for model 1
&2, the percentage of significance of (BANKS) and (IP) increased from 46% to 58% and from
50% to 62% respectively. However, for model 3; the percentage remained approximately the
same with no differences.
[INSERT TABLE 53]
[INSERT TABLE 6]
[INSERT TABLE 7]
15
We now control for the supervisory power. Results for models 1, 2, &3 are presented
in tables 8, 9, &10 respectively4. In general we got the same common results. In addition, the
number of countries that showed statistically significant coefficients also increased. In details,
For model 1 &2, the percentage of significance of (BANKS) and IP increased from 46% to
64% and from 50% to 64% respectively. However, for model 3; the percentage remained
approximately the same for (IP) but increased from 41% to 59% for (BANKS).
[INSERT TABLE 84]
[INSERT TABLE 9]
[INSERT TABLE 10]
Overall, we can say that these results contradict with the shadow banking as a substitute
theory and support the complementarity theory. Both variables (Capital stringency and
supervisory power) are used to capture the regulatory arbitrage phenomenon. According to it;
due to higher regulations and stringency, banks are substituting their traditional banking
activities with shadow banking activities. However, our results do not support the regulatory
arbitrage phenomenon. Nevertheless, even with higher regulatory control, the shadow banking
system can also be a complement to other financial institutions.
4.4. Fixed effect (Within) panel regressions
In order to once more check the robustness of our results, in addition to the country by
country analysis; we examine the correlation between shadow banking system and other
financial institutions using the fixed effect (within) regressions for the whole sample and
Euro-zone area. To account for this same linkage we use fixed effect (within) panel
regressions with Driscoll-Kray standard errors. Results for models 1, 2, &3 are presented in
table 5.s 11, 12, &13 respectively.
[INSERT TABLE 115]
[INSERT TABLE 12]
[INSERT TABLE 13]
We see that (Banks) and (IP) are both positive and significant in all models (1, 2, &3) for
the whole sample and the Euro-zone sample. These results strongly confirm the country-by-
16
country results we got from studying the correlation between shadow banking and other
financial institutions, mainly banks and insurance companies and pension funds. We can
generalize that for most of the studied countries and for the Euro-zone and whole sample, the
shadow banking system is a complement to other financial institutions.
5. Conclusion
The last financial crisis has shed the light on the shadow banking system. This system
is defined as all unregulated non-bank financial institutions and activities outside the
traditional banking system. Moreover, shadow banks are not subject to banking regulations, as
they do not receive deposits. Although being outside the traditional banking system is
considered a main characteristic of the shadow banking system, however; there exist
important linkage channels between shadow banking system and other financial institutions.
We can generalize that for most of the studied countries and for the Euro-zone and whole
sample, shadow banking system is a complement to and not a substitute for other financial
institutions.
Our results confirm the complementarity theory of the shadow banking system. An
important explanation of these results is the fact that banks and institutional investors are not
substituting their traditional activities with shadow banking activities. In addition to their
regular activities, banks are using the shadow banking for their supplementary demand.
Furthermore, traditional banks’ sponsorship of shadow banking activities increased the
linkage channels between both systems.
To conclude, this study indicates that the shadow banking is working in parallel with
other financial institutions. Nevertheless, this shadow banking system, although it can be a
complement to the conventional banking system, it is not an identical system. It is important
not to apply the designed regulations, for banks, to the shadow banking system.
17
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20
Tables & Figures
Table 1. Country-by-country linear regressions: linkage between shadow banking system and other financial institutions.
[1] [2]
2
BANKS t-stat Intercept t-stat R N IP t-stat Intercept t-stat R2 N
Australia 0.381 (2.17)** 0.842 (1.54) 0.05 94 0.361 (2.33)** 0.886 (1.45) 0.11 94
Austria 0.696 (0.95) 0.639 (0.53) 0.07 30 2.515 (2.20)** -1.035 (0.77) 0.23 30
Belgium 0.309 (0.88) 3.105 (2.34)** 0.01 82 2.608 (5.86)** -2.206 (1.81)* 0.35 83
Canada -0.222 (0.78) 2.559 (3.72)** 0.01 94 0.714 *(6.98)** 0.753 (1.69)* 0.22 94
Estonia 0.452 (1.46) -1.712 (0.99) 0.11 19 0.172 (1.31) -0.05 (0.04) 0.03 38
Finland -0.302 (1.95)* 2.334 (2.28)** 0.04 62 0.277 (0.74) 1.012 (0.94) 0.01 63
France 0.819 (2.87)** 1.029 (1.56) 0.14 75 2.318 (6.62)** -2.306 (3.25)** 0.64 71
Germany 1.398 *
(5.10)** 2.402 (3.49)** 0.17 83 0.49 *
(2.02)** 3.295 *
(4.72)** 0.04 90
Greece 1.69 *
(2.22)** 1.534 *
(1.29) 0.16 63 0.976 (4.60)** 2.06 *
(1.94)* 0.66 63
Hungary 1.69 (2.22)** 1.534 (1.29) 0.16 63 0.426 *
(1.66) 5.619 (4.13)** 0.03 89
Italy 0.226 (0.49) 2.142 (3.42)** 0.01 74 0.32 (1.65) 1.78 *
(2.37)** 0.03 74
Ireland -0.108 (1.01) 0.765 *
(0.99) 0.05 15 0.504 (2.02)* 2.968 (3.64)** 0.1 46
Korea 0.126 (1.1) 1.591 (4.69)** 0.03 43 0.711 (2.55)** -0.165 *
(0.2) 0.13 43
Lithuania 0.895 (5.86)** 0.901 *
(0.55) 0.26 39 0.879 (3.36)** 0.1 (0.06) 0.21 39
Luxembour 0.248 *
(0.79) 3.877 (4.04)** 0.02 34 0.429 *
(1.68) 2.697 (1.83)* 0.09 34
gMalta -0.236 (0.58) 2.165 *(1.11) 0.01 38 0.806 (1.25) 1.198 (0.58) 0.16 39
Netherlands 0.259 (2.18)** 1.679 (3.90)** 0.07 33 -0.045 (0.2) 2.035 (2.96)** 0 34
Norway 0.372 (2.76)** 2.901 *(5.30)** 0.07 71 1.226 (3.21)** 1.261 *(1.51) 0.19 71
Poland 0.314 *(0.66) 2.527 *(1.69) 0.02 39 0.335 *(1.01) 2.19 (1.51) 0.03 39
Portugal 0.775 (3.15)** 1.585 (2.71)** 0.13 63 0.348 (1.46) 2.241 (3.22)** 0.05 63
Slovak 0.539 *
(2.22)** 1.393 *
(1.03) 0.12 30 0.148 (2.18)** 2.104 *
(1.35) 0.04 38
Slovenia 0.436 (1.02) 1.127 (1.46) 0.06 38 0.139 (0.36) 1.566 (1.06) 0.01 38
Spain 1.49 (5.30)** 2.054 (2.11)** 0.19 94 0.684 (1.6) 3.227 (2.58)** 0.04 94
Sweden 0.381 *
(1.11) 2.052 (1.83)* 0.04 70 0.709 (2.42)** 1.099 (1.13) 0.09 70
UK 0.743 (7.33)** 2.135 (3.75)** 0.47 94 0.416 (3.63)** 3.127 (4.05)** 0.08 94
US 0.115 *
(0.57) 1.637 *
(4.82)** 0.01 94 0.19 *
(0.97 1.484 *
(3.67)** 0.02 94
* *
21
Table 1. Country-by-country linear regressions: linkage between shadow banking system and
other financial institutions (Cont’d).
[3]
BanquesBAN
KS IP Intercept R2 N
Australia 0.251 (1.69)* 0.318 (2.06)** 0.378 (0.53) 0.13 94
Austria 0.649 (1.17) 2.467 (2.36)** -1.52 (1.05) 0.28 30
(4.88)**
Belgium -0.131 (0.41) 2.669 * -2.172 (1.77)* 0.36 82
(7.08)**
Canada -0.323 (1.23) 0.729 * 1.318 (2.09)** 0.23 94
Denmark -0.059 (0.32) 0.281 (1.18) 1.115 (1.74)* 0.04 59
(6.19)** (3.43)**
France 0.333 (2.17)** 2.189 * -2.553 * 0.66 71
(4.94)**
Germany 1.294 * 0.361 (1.63) 1.967 (2.62)** 0.19 83
(4.28)**
Greece 0.464 (1.62) 0.926 * 1.326 (1.15) 0.67 63
(2.77)**
Hungary 1.666 * 0.211 (1.2) 0.924 (0.5) 0.15 89
(2.76)**
Italy 0.047 (0.08) 0.301 (0.97) 1.75 * 0.03 74
Ireland -0.099 (0.96) 0.386 (1.77) 0.55 (0.75) 0.19 15
Japan -0.054 (0.12) 0.682 (1.31) 0.403 (0.72) 0.05 63
(2.72)**
Korea 0.235 (2.04)** 0.932 * -1.243 (1.19) 0.23 43
Lithuania 0.647 (2.29)** 0.467 (1.17) -0.368 (0.23) 0.3 39
Luxembour
g 0.384 (1.31) 0.504 (1.96)* 2.403 (1.71)* 0.13 34
Malta -0.283 (0.68) 0.215 (2.63)** 1.665 (0.85) 0.05 38
(3.02)**
Netherlands 0.283 (2.06)** -0.134 (0.56) 1.852 * 0.09 33
(2.78)** (3.25)**
Norway 0.356 * 1.205 * 0.408 (0.44) 0.26 71
Poland 0.131 (0.26) 0.274 (0.77) 2.03 (1.24) 0.04 39
(3.16)**
Portugal 0.717 * 0.084 (0.37) 1.546 (2.50)** 0.13 63
Slovak 0.509 (1.92)* 0.109 (1.12) 0.873 (0.51) 0.14 30
Slovenia 0.419 (0.91) 0.071 (0.18) 0.986 (0.84) 0.06 38
(5.00)**
Spain 1.419 * 0.397 (1.03) 1.041 (1.01) 0.21 94
Sweden 0.294 (0.87) 0.656 (2.35)** 0.544 (0.43) 0.11 70
(7.97)** (5.51)**
UK 0.774 * 0.507 * 1.088 (2.10)** 0.58 94
US 0.187 (1.03) 0.237 (1.18) 1.17 (2.35)** 0.03 94
Table 1 shows the results of country-by-country regressions of Eq. (1), (2), & (3)
SBSjt = α1j + α2j Banksjt +εjt
SBSjt = α1j + α2j IPjt +εjt
SBSjt = α1j + α2j Banksjt + α3j IPjt + εjt
The dependent variable is growth rate of shadow banking system (SBS).
All sample include 26 countries: Australia, Austria, Belgium, Canada, Denmark, Estonia,
France, Finland, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Lithuania,
22
Luxembourg, Netherlands, Malta, Norway, Poland, Portugal, the Slovak Republic, Slovenia,
Spain, Sweden, the United Kingdom, and the United States.
Period: 1990-2013.
Equations are estimated by linear regression (with robust standard errors). T-statics are in
italics. Symbols ***, ** and * represent statistical significance at 1, 5 and 10 %, respectively.
23
Table 2. Country-by-country linear regressions: linkage between shadow banking system and traditional banks controlling for macroeconomic
variables.
Netherlan
Luxembo
Denmark
Germany
Hungary
Slovenia
Belgium
Portugal
Sweden
Austria
Greece
France
Japan
Spain
Italy
UK
urg
US
ds
Banks 0.248 0.057 -0.072 0.674 1.334 1.633 1.04 0.174 -0.114 0.285 -0.078 0.722 -0.561 1.181 0.453 0.752 0.169
(4.64)** (6.98)** (3.54)** (7.36)**
(0.45) (0.13) (0.49) (2.23)** (2.45)** (0.37) (0.26) (1.25) (0.62) (2.54)** (1.36) (1.37) (1.42)
* * * *
RGDP 4 3.112 -0.253 2.861 0.712 1.185 -0.838 0.826 0.585 0.577 0.757 -1.375 0.287 0.141 2.19 0.377 0.288
(2.76)**
(1.68) (1.86)* (0.66) (2.58)** (0.92) (0.72) (1.87)* (0.94) (0.98) (1.26) (1.25) (2.18)** (0.9) (0.15) (0.39 (1.17)
*
STR 1.528 -0.312 -1.207 0.017 0.896 1.431 -0.001 0.051 -5.145 -1.294 -0.165 -0.143 0.703 -0.185 0.986 0.234 0.261
(3.77)** (2.88)**
(1.95)* (0.7 (0.05) (1.56 (1.58) (0.6) (0.23) (2.20)** (1.42 (0.67) (0.32) (1.3) (0.67) (2.18)** (1.16)
* *
CRISIS -0.356 -3.212 -3.077 -0.676 1.089 6.831 -3.371 -0.279 1.024 -0.026 -3.142 -3.561 -7.996 -4.791 2.468 1.237 -2.985
(2.98)** (3.97)** (5.79)** (5.83)**
(0.11) (0.85 (0.38) (0.83) (1.39) (2.30)** (0.15) (0.66) (0.02) (2.59)** (2.30)** (1.2) (0.65)
* * * *
Intercep
-3.062 3.735 6.623 0.33 -0.477 -7.609 1.829 2 1.281 7.327 4.251 3.546 5.301 4.715 -3.221 0.306 1.296
t
(4.97)** (4.32)** (2.89)**
(0.75) (0.99) (0.18) (0.24) (1.42) (0.96) (1.53) (1.84)* (2.29)** (1.98)* (2.40)** (1.25) (0.17) (2.62)**
* * *
R2 0.25 0.07 0.2 0.24 0.19 0.24 0.65 0.03 0.11 0.13 0.47 0.23 0.62 0.23 0.12 0.48 0.64
N 30 82 59 75 72 63 58 74 63 34 33 63 38 94 70 94 94
Table 2 shows the results of country-by-country regressions of Eq. (1) controlling for macroeconomic variables.
SBSjt = α1j + α2j Banksjt + Xjt +εjt
Sample include 17 countries: Austria, Belgium, Denmark, Estonia, France, Germany, Greece, Hungary, Italy, Japan, Luxembourg, Netherlands,
Portugal, Slovenia, Spain, Sweden, the United Kingdom, and the United States.
Period: 1990-2013.
Equations are estimated by linear regression (with robust standard errors). T-statics are in italics. Symbols ***, ** and * represent statistical
significance at 1, 5 and 10 %, respectively.
24
Table 3. Country-by-country linear regressions: linkage between shadow banking system and
institutional investors controlling for macroeconomic variables.
Austria Belgium Denmark France Germany Greece Hungary Italy Ireland
IP 1.907 2.579 0.286 2.281 0.598 0.949 -0.099 0.273 0.292
(5.36)** (5.57)**
(1.86)* (1.68)* (2.26)** (4.81)*** (1.16) (1.42) (1.13)
* *
RGDP 2.102 2.377 -0.132 0.836 0.809 2.433 -1.344 0.561 -0.886
(0.95) (1.43) (0.37) (0.88) (1.1) (2.16)** (2.00)* (0.58) (1.76)*
STR 0.789 0.192 -1.181 -0.414 1.265 0.488 0.058 -0.012 -0.548
(0.88) (0.51 (3.66)*** (1.12) (2.06)** (1.13) (0.26 (0.05) (0.92)
CRISIS -2.586 1.661 -2.974 -0.339 -0.218 5.127 -8.253 -0.383 -5.173
(5.25)** (2.77)**
(0.75) (0.62) (2.86)*** (0.26) (0.15) (1.63) (0.19)
* *
Intercep
-0.922 -4.297 5.841 -1.292 -0.777 -2.351 6.358 1.969 7.699
t
(3.24)**
(0.22) (1.43) (3.94)*** (0.82) (0.35) (0.89) (2.63)** (1.14)
*
R2 0.35 0.37 0.24 0.66 0.15 0.69 0.38 0.04 0.24
N 30 83 59 71 72 63 58 74 46
Luxembour
Japan Netherlands Portugal Slovenia Spain Sweden UK US
g
IP 0.637 0.429 -0.07 0.142 -0.268 0.551 0.594 0.438 -0.049
(3.19)**
(1.34) (1.26) (0.44) (0.46) (1.07) (0.97) (1.90)* (0.41)
*
RGDP 0.656 0.064 0.716 -0.941 0.646 -1.199 1.512 -1.552 0.288
(1.18) (0.09) (1.26) (1.43) (1.34) (0.98 (1.74)* (0.7) (1.13)
STR -4.468 -1.547 -0.165 0.082 0.695 -0.487 0.61 -0.112 0.215
(1.88)
(1.57) (0.81) (0.19 (1.42) (1.3) (1.31) (0.42) (2.45)**
*
CRISIS 0.86 -1.744 -2.882 -4.131 -5.815 -9.425 1.651 -2.165 -3.175
(2.71)** (5.28)** (6.39)**
(0.57) (0.85) (3.76)*** (2.49)** (0.96) (0.83)
* * *
Intercep
0.908 8.125 4.094 3.87 3.671 8.938 -1.888 5.095 1.796
t
(5.02)** (4.10)**
(1.23) (2.51)** (4.84)*** (2.05)** (1.32) (0.94) (1.76)*
* *
R2 0.14 0.19 0.47 0.16 0.58 0.15 0.13 0.09 0.63
N 63 34 34 63 38 94 70 94 94
Table 3 shows the results of country-by-country regressions of Eq. (2) controlling for
macroeconomic variables.
SBSjt = α1j + α2j IPjt + Xjt +εjt
Sample include 18 countries: Austria, Belgium, Denmark, France, Germany, Greece,
Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, Portugal, Slovenia, Spain, Sweden,
the United Kingdom, and the United States.
Period: 1990-2013.
25
Table 42. Country-by-country linear regressions: linkage between Shadow banking system
and other financial institutions controlling for macroeconomic variables.
Belgiu Denmar German Hungar Japa
Austria France Greece Italy
m k y y n
BANKSBANQU
0.33 -0.2 -0.23 0.298 1.224 0.429 1.042 0.031 -0.15
ES
(2.04)* (4.14)** (7.14)**
(0.7) (0.59) (1.3) (1.31) (0.05) (0.37)
* * *
IP 1.951 2.625 0.374 2.177 0.5 0.912 -0.105 0.261 0.645
(1.88) (4.78)* (5.32)* (4.46)*
(1.91)* (2.12)** (1.42) (0.81) (1.31)
* ** ** **
RGDP 2.176 2.527 -0.086 0.928 0.582 2.325 -0.808 0.567 0.689
(2.02)*
(0.92) (1.54) (0.24) (1.02) (0.79) (1.89)* (0.56) (1.25)
*
-
STR 0.645 0.163 -1.19 -0.296 1.007 0.47 0.069 -0.007
4.406
(3.73)** (1.87)
(0.65) (0.4) (0.86) (1.70)* (1.11) (0.4) (0.04)
* *
-
CRISIS 1.705
1.207 -3.458 0.145 1.407 6.393 -3.798 -0.337 0.823
(3.46)**
(0.5) (0.4) (0.12) (1.05) (1.95)* (2.63)** (0.17) (0.54)
*
-
Intercept 1.564
-4.05 6.264 -2.043 -1.375 -3.366 1.665 1.914 0.918
(4.36)**
(0.36) (1.25) (1.39) (0.67) (1.18) (0.87) (1.45) (1.24)
*
R2 0.36 0.37 0.26 0.68 0.23 0.7 0.66 0.04 0.15
N 30 82 59 71 72 63 58 74 63
Luxembour Netherlan Portuga Sloveni Swede

Spain UK US
g ds l a n
BANQUESBAN
0.485 -0.067 0.716 -0.552 1.143 0.385 0.778 0.172
KS
(3.50)** (8.57)**
(2.10)** (0.49) (2.65)** (1.3) (1.15) (1.4)
* *
IP 0.537 -0.043 0.015 -0.258 0.385 0.519 0.516 0.008
(5.27)**
(1.51) (0.25) (0.05) (1) (0.68) (1.74)* (0.06)
*
RGDP 0.021 0.754 -1.38 0.548 -0.308 1.797 -0.31 0.282
(0.03) (1.26) (2.16)** (1.17) (0.23) (1.89)* (0.38 (1.06)
STR -1.533 -0.178 -0.15 0.765 -0.302 0.742 0.128 0.262
(2.97)**
(1.6) (0.82) (0.35) (1.32) (0.81) (1.58) (0.69)
*
CRISIS 0.095 -3.119 -3.54 -7.924 -4.866 2.513 0.91 -2.979
(4.72)** (5.61)**
(0.06) (3.75)*** (2.37)** (2.29)** (1.23) (0.53)
* *
Intercept 6.556 4.321 3.545 5.628 4.533 -3.44 0.282 1.278
(2.89)**
(2.17)** (4.51)*** (1.96)* (2.40)** (1.38) (0.17) (2.45)**
*
R2 0.24 0.47 0.23 0.64 0.24 0.16 0.59 0.64
N 34 33 63 38 94 70 94 94
Table 4 2 shows the results of country-by-country regressions of Eq. (31) controlling for
macroeconomic variables.
26
SBSjt = α1j + α2j BANKjt +IPjt +Xjt+ εjt
Sample include 17 countries: Austria, Belgium, Denmark, France, Germany, Greece,
Hungary, Italy, Japan, Luxembourg, Netherlands, Portugal, Slovenia, Spain, Sweden, the
United Kingdom, and the United States.
Period: 1990-2013.
27
Table 5. Country-by-country linear regressions: between Shadow banking system and traditional banks controlling for regulatory conditions.
Australia Canada Czech Finland France Germany Greece Hungary Italy Korea
BANKS 0.576 -0.324 0.371 -0.284 0.816 1.196 1.837 1.25 0.181 0.131
(2.19)** (0.96 (1.86)* (1.81)* (2.70)*** (3.03)*** (2.08)** (10.88)*** (0.31) (1.16)
Capital Stringency -1.365 -0.732 -0.213 2.082 -0.19 -2.859 0.81 -0.144 -0.918 0.043
(1.39) (1.49) (0.59) (0.98) (0.47) (1.24) (0.66) (0.83) (1.80)* (0.37)
Intercept 8.789 4.389 0.828 -6.465 1.265 17.097 -1.825 0.265 4.955 1.442
(1.33) (2.32)** (0.71) (0.69 (0.61) (1.46) (0.33 (0.31) (2.94)*** (2.36)**
R2 0.13 0.04 0.08 0.05 0.17 0.13 0.16 0.61 0.03 0.03
N 59 59 27 58 59 59 59 58 59 43
Lithuania Netherlands Norway Poland Portugal Slovak Slovenia UK US

BANKS 0.914 0.195 0.154 0.228 0.555 0.509 0.468 0.74 0.247
(5.82)*** (1.49) (1.38) (0.52) (2.23)** (2.26)** (1.11) (6.87)*** (0.89)
Capital Stringency 1.263 -0.931 0.002 -0.794 0.492 -0.901 0.556 0.265 -0.736
(1.63) (2.62)** (0.01) (1.94)* (1.86)* (0.94) (0.76) (1.04) (6.33)***
Intercept -2.633 6.084 3.288 5.19 -0.379 4.21 -1.228 0.216 4.132
(1.70)* (3.08)*** (2.11)** (2.82)*** (0.28) (1.41) (0.4) (0.21) (5.13)***
R2 0.32 0.18 0.03 0.11 0.15 0.15 0.08 0.61 0.21
N 39 33 47 39 59 30 38 59 59
28
regulatory conditions.
Sample include 19 countries: Austria, Belgium, Denmark, Czech, Estonia, France, Germany,
Greece, Hungary, Italy, Japan, Luxembourg, Netherlands, Portugal, Slovak, Slovenia, Spain,
Sweden, the United Kingdom, and the United States.
Period: 1990-2013.
29
Table 6. Country-by-country linear regressions: linkage between Shadow banking system and institutional investors controlling for regulatory
conditions.
Australi
a Austria Belgium Canada Estonia Finland France Germany Greece Hungary Italy
IP 0.384 2.393 2.762 0.747 0.366 0.254 2.405 0.425 0.979 0.112 0.569
(2.15)* (4.00)** (5.22)** (2.08)* (5.26)** (4.61)** (2.29)*
(2.18)** * * * * (0.65) * (1.22) * (2.17)** *
capital stringency -1.929 0.825 -0.622 -0.754 1.332 2.146 -0.009 -3.916 -1.226 -0.315 -0.719
(2.48)** (0.75) (1.76)* (1.53) (1.88)* (0.97) (0.04) (1.58) (1.26) (1.11) (1.33)
Intercept 12.833 -3.623 -1.081 2.65 -5.337 -8.024 -2.439 22.688 6.878 3.924 3.682
(3.13)**
(2.46)** (0.91) (0.49) (1.79)* (1.62) (0.83) (1.6) (1.79)* (1.73)* * (1.72)*
2
R 0.18 0.24 0.38 0.21 0.1 0.02 0.65 0.08 0.67 0.04 0.08
N 59 30 59 59 38 59 59 59 59 58 59
Netherland
Ireland Korea Lithuania s Norway Poland Portugal Slovak Sweden UK US
IP 0.439 0.71 0.957 -0.019 0.866 0.242 0.114 0.148 0.434 0.219 0.058
(2.52)* (3.38)** (2.62)* (2.12)*
(1.78)* * * (0.08) * (0.81) (0.61) * (1.47) (1.02) (0.29)
capital stringency -0.541 0.007 1.483 -1.062 0.104 -0.766 0.729 -0.038 -0.758 0.886 -0.77
(3.01)** (7.27)**
(1.86)* (0.05) (1.78)* (3.07)*** (0.37) (1.88)* * (0.04) (0.54) (1.91)* *
Intercept 5.109 -0.188 -4.334 6.931 1.304 4.869 -0.929 2.234 3.171 -1.411 4.6
(3.09)** (2.62)* (7.22)**
* (0.19) (1.66) (3.34)*** (0.75) * (0.72) (0.65) (0.82) (0.53) *
R2 0.13 0.13 0.3 0.15 0.15 0.11 0.1 0.04 0.07 0.05 0.19
N 46 43 39 34 47 39 59 38 48 59 59
30
regulatory conditons.
SBSjt = α1j + α2j IPsjt + Xjt +εjt
Sample include 22 countries: Australia, Belgium, Denmark, Estonia, France, Germany,
Greece, Hungary, Italy, Korea, Ireland, Japan, Lithuania, Luxembourg, Netherlands, Portugal,
Norway, Slovak, Slovenia, Spain, Sweden, the United Kingdom, and the United States.
Period: 1990-2013.
31
Table 73. Country-by-country linear regressions: linkage between shadow banking system and other financial institutions controlling for
Australi
a Austria Belgium Canada Czech France Germany Greece Hungary Italy Korea
BANQUESBANKS 0.361 0.631 0.067 -0.352 0.373 0.282 1.134 0.361 1.267 -0.067 0.243
(10.55)**
(1.84)* (1.08) (0.31) (1.08) (1.81)* (1.88)* (3.13)*** (1.16) * (0.1) (2.14)**
IP 0.313 2.448 2.742 0.751 0.017 2.258 0.355 0.945 -0.032 0.599 0.939
(2.29)* (3.80)** (5.25)** (4.91)** (4.33)** (2.78)**
(1.83)* * * * (0.05) * (1.21) * (0.74) (1.61) *
CAPSTRcapital
stringency -1.585 0.138 -0.632 -0.743 -0.209 0.019 -2.97 -0.663 -0.139 -0.72 0.07
(1.89)* (0.12) (1.71)* (1.62) (0.53) (0.08) (1.26) (0.66) (0.8) (1.32) (0.57)
Intercept 9.971 -1.94 -1.062 3.25 0.777 -2.757 17.366 4.176 0.308 3.732 -1.505
(1.72)* (0.5) (0.48) (1.77)* (0.44) (1.81)* (1.46) (0.98) (0.35) (1.94)* (1.49)
R2 0.21 0.29 0.38 0.23 0.08 0.66 0.15 0.68 0.61 0.08 0.23
N 59 30 59 59 27 59 59 59 58 59 43
Portuga
Lithuania Malta Netherlands Norway Poland l Slovak Slovenia Sweden UK US
BANQUESBANKS 0.618 -0.266 0.213 0.157 0.101 0.57 0.489 0.446 -0.132 0.772 0.287
(7.29)**
(2.02)* (0.59) (1.42) (1.43) (0.21) (2.21)** (1.97)* (0.98) (0.36) * (1.1)
IP 0.56 0.218 -0.087 0.868 0.195 -0.039 0.089 0.104 0.454 0.427 0.118
(2.67)* (2.60)* (2.92)**
(1.29) * (0.37) * (0.58) (0.21) (0.8) (0.29) (1.53) * (0.55)
CAPSTRcapital
stringency 1.419 0.355 -0.904 0.126 -0.762 0.502 -0.768 0.607 -0.731 0.308 -0.716
(1.72)* (0.22) (2.62)** (0.45) (1.86)* (1.89)* (0.73) (0.93) (0.53) (1.17) (6.04)***
Intercept -4.589 -0.019 6.069 0.838 4.73 -0.399 3.371 -1.647 3.389 -0.631 3.822
(1.96)* (0.00) (3.03)*** (0.45 (2.44)* (0.3) (0.9) (0.67) (0.82) (0.49) (4.15)***
32
*
2
R 0.38 0.05 0.19 0.17 0.11 0.15 0.16 0.08 0.07 0.66 0.21
N 39 38 33 47 39 59 30 38 48 59 59
33
SBSjt = α1j + α2j Banksjt +α3j IPjt + Xjt +εjt
Greece, Hungary, Italy, Korea, Japan, Lithuania, Luxembourg, Netherlands, Portugal,
Period: 1990-2013.
34
Table 8. Country-by-country linear regressions: linkage between Shadow banking system and traditional banks controlling for supervisory
conditions.
Australia Canada Czech Finland France Germany Greece Hungary Italy Japan Korea
BANKS 0.632 -0.328 0.371 -0.284 0.788 1.344 1.938 1.232 0.154 -0.318 0.139
(2.57)* (2.03)* (8.87)**
(2.58)** (0.93) (1.86)* (1.77)* * (2.87)*** * * (0.27) (0.63) (1.2)
Supervisory Power -0.498 -0.068 0.32 -0.498 -0.709 0.092 -1.649 0.542 -0.485 -18.16 -0.155
(2.52)*
(1.09) (0.26) (0.59) (0.79) (1.12) (0.13) (1.29) (0.51) (2.41)** * (1.13)
Intercept 6.03 3.087 -2.582 5.843 6.294 1.381 17.87 -7.837 6.108 217.411 3.158
(3.21)** (2.54)* (2.38)*
(1.08) (1.08) (0.53) (1.31) (1.14) (0.23) (1.36) (0.53) * * *
2
R 0.13 0.01 0.08 0.05 0.19 0.1 0.18 0.6 0.04 0.12 0.05
N 59 59 27 58 59 59 59 58 59 48 43
Netherland
Lithuania Luxembourg s Norway Portugal Slovak Slovenia Spain UK US
BANKS 0.856 0.273 0.226 0.201 0.48 0.509 0.289 1.86 0.761 0.285
(2.26)* (9.69)** (6.33)**
(5.00)*** (0.91) (1.89)* (1.82)* (1.92)* * (0.72) * * (1.07)
Supervisory Power -1.247 1.097 -0.688 0.166 1.81 1.405 -2.848 -0.118 -0.397 -0.961
(1.70)* (1.75)* (3.19)*** (0.26) (2.65)** (0.94) (2.50)** (0.39) (0.71) (1.73)*
Intercept 17.007 -8.459 8.702 1.921 -22.131 -15.745 40.21 2.237 5.617 13.643
(1.6) (1.16) (3.90)*** (0.34) (2.50)** (0.85) (2.56)** (0.66) (1) (1.81)*
R2 0.32 0.1 0.18 0.03 0.21 0.15 0.22 0.55 0.58 0.12
N 39 34 33 59 59 30 38 59 48 59
35
supervisory conditions.
Period: 1990-2013.
36
Table 9. Country-by-country linear regressions: linkage between Shadow banking system and institutional investors controlling for supervisory
conditions.
Australi Denmar German Hungar
Austria Belgium Canada France Greece Italy Ireland
a k y y
IP 0.376 2.393 2.662 0.756 0.366 2.411 0.409 0.988 0.024 0.541 0.406
(2.15)* (3.41)** (4.95)** (4.94)** (4.57)** (2.22)*
(2.03)** (2.08)** (1.13) (0.44) (1.65)
* * * * * *
Supervisory Power -0.371 -0.825 0.727 -0.16 -2.663 0.032 0.023 0.132 3.053 -0.381 0.527
(2.33)*
(0.79) (0.75) (0.5) (0.65) (1.88)* (0.08) (0.03) (0.16) (1.84)* (2.42)**
*
Intercept 5.258 7.933 -11.46 2.032 33.28 -2.748 2.188 0.823 -39.734 4.607 -2.232
(2.19)* (2.14)*
(0.9) (0.68) (0.69) (0.87) (1.90)* (0.68) (0.35) (0.1) (1.24
* *
R2 0.15 0.24 0.35 0.19 0.1 0.65 0.03 0.67 0.1 0.09 0.15
N 59 30 59 59 38 59 59 59 58 59 46
Netherland
Japan Korea Lithuania Malta Poland Slovak Slovenia Spain UK US
s
IP 0.242 0.704 0.924 0.509 -0.15 1.327 -0.021 0.161 1.619 0.369 0.092
(2.57)* (3.92)** (3.26)**
(0.66) (3.40)*** (1.87)* (0.63) (0.11) (0.53) (1.85)* (0.47)
* * *
Supervisory Power -16.639 -0.1 -1.651 1.286 -0.67 0.095 2.347 -3.117 0.505 -0.304 -1.045
(2.36)* (3.38)** (2.86)**
(0.63) (2.25)** (1.83)* (3.92)*** (0.19) (1.17) (0.33) (1.97)*
* * *
Intercept 199.161 0.882 21.017 -11.983 8.905 0.233 -28.645 43.998 -3.51 6.946 15.105
(2.37)* (3.18)** (2.84)** (2.13)*
(0.49 (2.14)** (1.41 (4.39)*** (0.05) (0.7) (0.71)
* * * *
R2 0.11 0.14 0.31 0.19 0.14 0.28 0.16 0.2 0.22 0.04 0.1
N 48 43 39 34 34 59 59 38 59 48 59
37
SBSjt = α1j + α2j IPsjt + Xjt +εjt
Period: 1990-2013.
38
Table 104. Country-by-country linear regressions: linkage between shadow banking system and other financial institutions controlling for
Australi Lithuani
a Belgium Canada Czech France Germany Greece Hungary Italy Korea a
BANQUESBANKS 0.441 0.041 -0.352 0.373 0.283 1.291 0.53 1.247 -0.078 0.249 0.546
(2.95)** (8.95)**
(2.31)** (0.18) (1.02) (1.81)* (1.88)* * (1.57) * (0.12) (2.13)** (1.63)
IP 0.288 2.65 0.76 0.017 2.266 0.333 0.933 -0.053 0.576 0.935 0.571
(3.24)** (4.97)** (4.64)** (4.27)** (2.80)**
(1.55) * * (0.05) * (1.14) * (1.15) (1.58) * (1.3)
SUPPOWsupervisor
y Power -0.41 0.744 -0.147 0.313 0.063 0.026 -0.408 0.787 -0.384 -0.162 -1.439
(0.9) (0.51) (0.61) (0.53) (0.15) (0.04) (0.45) (0.69) (1.90)* (1.16) (1.79)*
Intercept 4.817 -11.664 2.555 -2.56 -3.207 1.681 5.526 -11.12 4.689 0.385 17.931
(2.41)*
(0.84) (0.69) (0.98) (0.51) (0.8) (0.28) (0.6) (0.71) * (0.2) (1.64)
2
R 0.19 0.35 0.21 0.08 0.66 0.12 0.68 0.61 0.09 0.25 0.37
N 59 59 59 27 59 59 59 58 59 43 39
Luxembour Netherland Sloveni

g Malta s Norway Portugal Slovak a Spain Sweden UK US
BANQUESBANKS 0.441 -0.266 0.262 0.196 0.539 0.489 0.259 1.664 -0.124 0.78 0.339
(7.63)** (6.69)**
(1.78)* (0.59) (1.86)* (1.72)* (2.12)** (1.97)* (0.62) * (0.35) * (1.34)
IP 0.601 0.218 -0.216 1.323 -0.166 0.089 0.117 0.651 0.447 0.476 0.16
(2.67)* (3.94)** (3.33)**
(2.15)** * (0.87) * (0.91) (0.8) (0.38) (1.44) (1.58) * (0.76)
SUPPOWsupervisor
y Power 1.375 -0.355 -0.763 0.109 1.977 1.198 -2.892 0.145 -0.888 -0.436 -0.923
(2.70)** (2.53)*
(2.06)** (0.22) (3.56)*** (0.22) * (0.73) * (0.43) (0.64) (0.83) (1.63)
Intercept -13.338 6.371 9.745 -0.333 -24.237 -13.64 40.586 -1.324 8.46 5.4 12.83
39
5
(2.51)*
(1.63) (0.32) (4.04)*** (0.07) (2.57)** (0.69) * (0.34) (0.77) (1.01) (1.65)
2
R 0.25 0.05 0.22 0.31 0.21 0.16 0.22 0.58 0.08 0.64 0.13
N 34 38 33 59 59 30 38 59 48 48 59
40
SBSjt = α1j + α2j Banksjt +α3jIPjt + Xjt +εjt
Period: 1990-2013.
41
Table 11. Fixed effects (within) regressions: Linkage between shadow banking system and
traditional banks.
All Sample Euro Zone
[1] [2] [3] [4] [1] [2] [3] [4]
BANKS 0.54 0.428 0.48 0.474 0.471 0.331 0.442 0.446
(7.43)** (7.52)** (3.74)** (3.33)** (3.35)**
(6.48)*** (7.00)*** (2.46)**
* * * * *
CRISIS -2.083 -2.864
(3.36)**
(3.86)***
*
RGDP 0.373 0.381
(2.43)** (1.89)*
STR 0.059 0.044
(0.46) (0.18)
CAPSTR -0.113 -0.028
(1.03) (0.15)
SUPPOW -0.288 -0.337
(2.08)** (1.77)*
Constant 1.953 1.999 1.988 4.573 2.225 2.947 1.938 5.346
(6.70)** (3.00)** (5.61)** (2.76)**
(3.21)*** (3.06)*** (1.89)* (2.64)**
* * * *
N of
1,720 1,657 1,352 1,353 872 860 747 747
observations
R2 0.06 0.07 0.07 0.06 0.04 0.06 0.04 0.04
FE Yes Yes Yes Yes Yes Yes Yes Yes
N. of countries 29 29 29 29 17 17 17 17
This table shows the results of the fixed effects (within) regressions of Eq. (1)
SBSjt = α1 + α2 BANKSjt + Xjt+ εjt.
Model (1) includes BANKS only.
Model (2) adds macroeconomic control variables.
Model (3) and (4) adds regulatory and supervisory variables respectively.
All sample include 29 countries: Australia, Austria, Belgium, Canada, the Czech Republic,
Denmark, Estonia, France, Finland, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea,
Lithuania, Luxembourg, Netherlands, Malta, Norway, Poland, Portugal, the Slovak Republic,
Slovenia, Spain, Sweden, the United Kingdom, and the United States.
Euro-zone sample include 17 countries: Austria, Belgium, Estonia, France, Finland, Germany,
Greece, Ireland, Italy, Lithuania, Luxembourg, Portugal, Netherlands, Malta, the Slovak
Republic, Slovenia, and Spain
Period: 1990-2013.
Equations are estimated by fixed effects (within) regression. Standard errors are Driscoll-
Kraay robust. Driscoll-Kraay (1998) standard errors are robust to heteroscedasticity,
autocorrelation, and cross-sectional dependency.
42
institutional investors.
[1] [2] [3] [4] [1] [2] [3] [4]
IP 0.636 0.591 0.602 0.612 0.701 0.68 0.699 0.699
(4.29)** (3.62)** (3.57)** (3.63)** (3.33)** (3.39)**
(3.50)*** (3.38)***
* * * * * *
CRISIS -2.552 -3.254
(5.27)** (4.97)**
* *
RGDP 0.118 0.012
(0.73) (0.05)
STR -0.097 -0.174
(1.23) (1.19)
CAPSTR -0.053 0.059
(0.64) (0.45)
SUPPOW -0.192 -0.193
(1.57à (1.21)
Constant 1.517 2.297 1.399 3.214 1.439 2.9 0.875 3.164
(3.72)** (4.68)** (3.87)**
(2.40)** (2.46)** (2.52)** (1.08) (1.77)*
* * *
N of observations 1,785 1,715 1,413 1,414 937 918 808 808
R2 0.13 0.17 0.16 0.16 0.18 0.2 0.2 0.21
N. of countries 29 29 29 29 17 17 17 17
This table shows the results of fixed effects (within) regressions of Eq. (2)
SBSjt = α1 + α2 IP + Xjt+ εjt.
Model (1) includes IP only.
Period: 1990-2013.
43
other financial institutions.
[1] [2] [3] [4] [1] [2] [3] [4]
BANKSBANQUE
0.432 0.356 0.346 0.332 0.292 0.198 0.200 0.206
S
(8.21)** (7.51)** (3.33)**
(7.31)*** (6.60)*** (2.26)** (2.20)** (2.22)**
* * *
IP 0.556 0.525 0.509 0.519 0.627 0.619 0.614 0.614
(3.72)** (2.85)** (3.12)** (2.98)** (2.83)** (2.83)**
(3.22)*** (2.91)***
* * * * * *
CRISIS -1.859 -1.749 -1.614 -2.805 -2.397 -2.228
(3.83)** (4.04)** (4.03)** (3.52)**
(4.06)*** (3.33)***
* * * *
RGDP 0.094 0.063
(0.69) (0.32)
STR -0.064 -0.144
(0.86) (1.03)
CAPSTR -0.038 0.110
(0.43) (0.85)
SUPPOW -0.219 -0.180
(1.71)* (0.96)
Constant 0.840 1.497 1.303 3.424 1.021 2.428 1.191 3.483
(2.97)**
(2.45)** (2.96)*** (2.21)** (2.67)*** (2.01)** (1.59) (1.85)*
*
N of observations 1,716 1,653 1,352 1,353 868 856 747 747
R2 0.16 0.19 0.20 0.20 0.19 0.21 0.23 0.23
N. of countries 29 29 29 29 17 17 17 17
This table shows the results of fixed effects (within) regressions of Eq. (31)
SBSjt = α1 + α2 BANKSjt + α3 IPjt + Xjt+ εjt.
Model (1) includes BANKS and IP.
Period: 1990-2013.
44
Table 14. Summary of obtained results.
Model Column (I) (II) (III) (IV) (V) (VI) (VII)
Linear Regressions Fixed effect (Within) Regressions
Table 1 Country-by-country Euro-zone Whole sample
Positive Negative Total Positive Negative Positive Negative
12 1 13 1 0 1 0
[1] BANKS
(92%) (8%) (46%)
14 0 14 1 0 1 0
[2] IP
(100%) (0%) (50%)
12 0 12 1 0 1 0
BANKS
(100%) (0%) (43%)
[3]
12 0 12 1 0 1 0
IP
(100%) (0%) (43%)
‍
Table 2-4 Country-By-Country Euro-zone Whole sample
7 0 7 1 0 1 0
[1] BANKS
(100%) (0%) (41%)
8 0 8 1 0 1 0
[2] IP
(100%) (0%) (44%)
7 0 7 1 0 1 0
BANKS
(100%) (0%) (41%)
[3]
8 0 8 1 0 1 0
IP
(100%) (0%) (47%)
‍
10 1 11 1 0 1 0
[1] BANKS
(91%) (9%) (58%)
13 0 13 1 0 1 0
[2] IP
(100%) (0%) (62%)
10 0 14 1 0 1 0
BANKS
(100%) (0%) (45%)
[3]
9 0 11 1 0 1 0
IP
(100%) (0%) (41%)
‍
13 1 14 1 0 1 0
[1] BANKS
(93%) (7%) (64%)
14 0 14 1 0 1 0
[2] IP
(100%) (0%) (64%)
13 0 13 1 0 1 0
BANKS
(100%) (0%) (59%)
[3]
9 0 9 1 0 1 0
IP
(100%) (0%) (41%)
45
Table 14 presents a summary of the results of the linkage between shadow banking system
and other financial institutions using linear regressions for the country-by-country
examinations and fixed (within) effect for the whole sample and euro-zone sample. Columns I
& II report the number (and the proportion over the total statically significant coefficients) of
countries that shows positive and negative significant results. For example, there are 12
countries (over 13 countries that have statistically significant coefficients, i.e., 92%) in which
the linkage between shadow banking system and traditional banks is positive and significant,
and only 1 country (i.e., 8%) shows a negative and statistically significant linkage. Column III
presents the number of countries that have significant coefficients and its proportion over the
total regressions (13 countries from 28 shows statistically significant coefficients, i.e., 46%).
Correspondingly, columns IV, V, VI, and VII report whether in the panel regressions, the
linkage is statically significant or not. This linkage takes the value of 1 if significant, the value
of 0 otherwise.
46
Appendix
Table 1. Variables description and data sources

Variable Label Description Source
Somme des passifs
Croissance du financiers des autres
Growth of intermédiaires
“shadow SBS financiersSum of
banking financial liabilities of
system” other financial
intermediaries
Taille des institutions de
Croissance du dépôt traditionnelles
banquesGrowt BANKS (alias banques)Size of National Flow of Funds
h of banks traditional depository (Haver, central bank webpage,
institutions (aka banks) ECB warehouse)
Taille des investisseurs
institutionnels incluant
Croissance du
les sociétés d'assurance
investisseurs
et les fonds de
institutionnels
IP pensionSize of
Growth of
institutional investors
institutional
that includes insurance
investors
corporations and
pension funds
Prend la valeur de 1 en
Luc Laeven and Fabian
cas de crise bancaire
Variable Valencia, 2013. "Systemic
systémique, 0
muette de Banking Crises Database,
CRISIS sinonTakes the value of
criseCrisis "IMF Economic Review,
1 in case of systemic
dummy Palgrave Macmillan, vol.
banking crisis, 0 other
61(2), pages 225-270, June.
wise
47
Real gross domestic
RGDP RGDP OECD
product
Taux d'intérêt à Taux d'intérêt à 3 mois
court sur les bons du Trésor3-
STR OECD
termeShort month interest rates on
term rates Treasury bills
Banking Barth, James R., Caprio,

Scaled index of overall
Capital CAPSTR Gerard, Jr., and Ross Levine.
capital stringency
Stringency 2013. "Bank Regulation and
Supervision in 180 Countries
Official Scaled index of possible from 1999 to 2011." National
Supervisory SUPPOW interventions by Bureau of Economic Research
Power supervisory authorities Working Paper 18733.
Table 2. Statistiques sommairesSummary statistics

Ce tableau présente les statistiques récapitulatives pour l'échantillon principal de 29 pays sur
la période 1989-2013.This table reports the summary statistics for the main sample of 29
countries over the period 1989 to 2013.
Variable N Mean Std. 25th 50th 75th
percentile percentile percentile
SBS 1790 3.070 8.013 -0.521 2.494 5.630
BANKS 1737 1.842 3.509 -0.014 1.561 3.539
IP 1790 2.466 4.675 0.5306 2.109 4.006
CRISIS 2784 0.200 0.4003 0 0 0
RGDP 2418 0.568 1.260 0.029 0.629 1.149
STR 2259 4.752 3.917 2.158 3.88 5.884
48
CAPSTR 1692 4.154 1.732 3 4 6
SUPPOW 1692 10.637 2.427 9 11 12.923
49
Table 3. Statistiques récapitulatives de la taille des systèmes financiersSummary statistics of
the size of the financial systems
Ce tableau présente la valeur moyenne de la taille des variables des secteurs financiers pour
les 29 pays et la zone euro (1990-2013)This table reports the mean value of the size of
financial sectors variables for the 29 countries and Eurozone (1990–2013)
Countries SBS Banks IP N
1 Australia 1.777 2.451 2.468 94
2 Austria 1.205 1.338 0.875 43
3 Belgium 3.456 1.013 2.171 83
4 Canada 2.150 1.841 1.957 94
5 Czech 1.459 1.674 2.090 38
6 Denmark 1.521 1.700 1.801 59
7 Estonia 0.991 1.569 5.937 39
8 Finland 1.511 2.554 1.800 63
9 France 2.274 1.520 2.019 75
10 Germany 4.020 0.950 1.479 90
11 Greece 4.694 1.869 2.701 63
12 Hungary 7.683 3.585 5.017 93
13 Italy 2.503 1.595 2.257 74
14 Ireland 3.981 -2.841 2.012 46
15 Japan 0.672 0.142 0.406 63
16 Korea 1.836 1.932 2.816 43
17 Lithuania 4.229 3.717 4.696 39
18 Luxembourg 3.927 0.202 2.868 34
19 Malta 4.067 2.919 3.558 39
20 Netherland 1.967 0.944 1.514 34
21 Norway 3.837 2.514 2.102 71
22 Poland 3.479 3.026 3.843 39
23 Portugal 2.766 1.523 1.509 63
24 Slovak 2.893 0.870 5.341 38
25 Slovenia 1.901 1.776 2.408 83
26 Spain 5.232 2.133 2.932 94
27 Sweden 2.949 2.357 2.609 70
28 UK 3.925 2.408 1.920 94
29 US 1.786 1.287 1.582 94
Europe 3.212 1.580 2.546 942
All 3.071 1.842 2.466 1790
50
Table 4. Correlation matrix
Ce tableau présente les corrélations entre les banques fantômes, les banques, la propriété
intellectuelle et d'autres variables de contrôle importantes. Partie supérieure: Matrice de
corrélation, Partie inférieure: Corrélations par paire.
Les définitions des variables sont présentes dans le tableau 1.This table presents correlations
between Shadow banks, Banks, IP and other important control variables. Upper side:
Correlation Matrix, Lower side: Pairwise Correlations.
Definitions of the variables are present in Table 1.
Variable SBS Banks IP CRISIS RGDP STR CAPSTR SUPPOW
SBS 0.2552 0.3711 -0.0930 0.1105 0.0873 0.0011 -0.0147
Banks 0.2530 0.1803 -0.2445 0.2081 0.1201 -0.0274 0.0253
IP 0.3875 0.1619 -0.1467 0.1733 0.1539 -0.0794 0.0841
CRISIS -0.1512 -0.2801 -0.1484 -0.2531 -0.1755 0.0665 0.0925
RGDP 0.1447 0.2229 0.1738 -0.3047 0.0212 -0.0331 0.0216
STR 0.0963 0.1533 0.1489 -0.2791 -0.0001 -0.0203 0.1485
CAPSTR 0.0027 -0.0364 -0.0714 0.1425 -0.0583 -0.0565 0.0324
SUPPO -0.0427 0.0259 0.0599 0.1095 -0.0119 0.1470 0.0539
W
51

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Shadow Banking System: A complement to other

regular financial institutions?

This version: December 2017

JEL Classification Codes: E51, G21, G23

Christine Lagarde, Managing Director of the IMF (Oct 2014)

2.1. About the shadow banking system

2.2. Linkage between shadow banking and other financial institutions

[Insert Figure 1 & 2 about here]

2.3. Shadow Banking as the new parallel banking system

2.4. How this study fits into the literature?

3. Data and Methodology

3.2. Dependent variable

3.3. Variables of interest

3.4. Country-level control variables

Where Xjt is a vector of control variables.

SBSjt = α1j + α2j IPjt + Xjt + εjt (2)

SBSjt = α1j + α2j BANKSjt + α3j IPjt + Xjt + εjt (3)

Where Xjt is a vector of control variables.

]INSERT TABLE 1 ABOUT HERE[

4.2. Controlling for economic development differences

[INSERT TABLE 14 ABOUT HERE]

4.3. Controlling for regulatory and supervisory conditions

[INSERT TABLE 53]

[INSERT TABLE 84]

[INSERT TABLE 10]

4.4. Fixed effect (Within) panel regressions

[INSERT TABLE 115]

[INSERT TABLE 12]

[INSERT TABLE 13]

European Commission (2012) Green paper on shadow banking.

Fein, M. L. (2013). The shadow banking charade. Working paper.

Financial Stability Board (2015). Global Shadow Banking Monitoring Report.

Górnicka, L. A. (2016) Banks and shadow banks: Competitors or complements?. Journal of

McCullay, P. (2007) Teton Reflections. PIMCO: Global Central Bank Focus.

Luxembour Netherlan Portuga Sloveni Swede

Lithuania Netherlands Norway Poland Portugal Slovak Slovenia UK US

Luxembour Netherland Sloveni

Table 1. Variables description and data sources

Banking Barth, James R., Caprio,

Table 2. Statistiques sommairesSummary statistics

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