Shadow banks play key role in business cycle – BoE paper

Research published by the Bank of England proposes a mechanism through which shadow banks may drive fluctuations in the business cycle.

Banks, shadow banks, and business cycles, by Yvan Becard and David Gauthier, proposes a theoretical model in which shadow banks may impact wider credit conditions through securitisation decisions.

In the model, banks can shift their risk to investors via securitisations provided by the shadow banking sector. This allows banks to expand lending to households