The Shadow Banking System under Macroeconomic fluctuations

Abstract

This thesis investigates the impact of key macroeconomic variables on the growth and evolution of shadow banking across six countries—France, Germany, India, Japan, the United Kingdom, and the United States—over a 15-year period from 2007 to 2022. By employing panel data analysis and econometric modeling, including Ordinary Least Squares (OLS), Fixed Effects, and Random Effects models, the study explores how factors such as GDP growth, government bond yields, stock market indices, and liquidity reserves influence non-bank financial intermediation (NBFI), a proxy for shadow banking activities.

The findings reveal that among the variables examined, stock market performance has a significant negative impact on shadow banking, indicating that declines in stock markets are associated with reduced shadow banking activities. However, other variables like GDP growth, government bond yields, and liquidity reserves did not show significant effects in the models applied. The study highlights the complexity of the shadow banking system and suggests that while stock market conditions are critical, other macroeconomic and regulatory factors may play a nuanced role in shaping the sector's dynamics. The thesis concludes with a discussion on the limitations of the analysis and recommendations for future research, emphasizing the need for ongoing monitoring and regulation to ensure financial stability in an increasingly interconnected global financial system.