A Review on the Impact of Shadow Banking on Financial Markets Prudential Regulation

The evolution of shadow banking sector in terms of structure (concentration of institutions), expanded connections with banks, and in terms of activities there was an increase of the systemic relevance of these entities. The aim of this paper is to review the relevant literature on the topic and the progress that has been made regarding the implementation of macro-prudential policies since the global financial crisis of 2008. As the financial crisis highlighted, shadow banking sector should be considered a source of systemic risk and it is essential to identify its potential effects to the financial sector downturn. We examine the empirical studies that have been carried out in the recent literature on the structure and effects of nonbank financial sector regulation. Based on our findings, the main results pointed out that the academic research conducted in this field focused on the link between shadow banking and systemic risk. The collapse of one financial institution has the potential to have widespread effects and could trigger a series of failures that directly threatens the stability of the whole financial system.