Just before the recent financial crisis, US economists had begun to express concern that financing for businesses and households—a key banking function—was increasingly likely to come from paral- lel sources. Credit risks, instead of appearing on the balance sheets of the lending banks, were distributed across financial markets using structures of growing complexity, with the result that it was impos- sible to trace them or even to ensure that the final risk-bearers were fully aware of their exposure. At the same time, lending institutions began to find it difficult to attract savings in the form of bank depos- its, which were increasingly drawn towards pooled investment funds that imitated the characteristics of bank products.

The book explores the mechanisms of the shadow banking network, its risks for financial stability and the possible remedies against those risks.