Table 7 Key literature on SB and financial stability

Barth et al. (2015)

Journal of Financial Economic Policy

Theoretical

China

Shadow banks may prove useful by enhancing greater savings and investment opportunities and diversifying the Chinese financial sector

Bengtsson (2013)

Journal of International Money and Finance

Theoretical

Europe

Transparency makes it difficult for European MMFs investors to distinguish between MMFs based on asset quality. Also, policy coordination needs to be improved when unusual steps are taken to protect financial stability

Bouguelli (2020)

Journal of Post Keynesian Economics

Theoretical

As ‘financial layering’ increases in the economy alongside the development of shadow banking, financial fragility increases too. Additionally, as a large part of shadow banking is an alternative source of funds for banks, financial fragility increases alongside the development of shadow banking

Culp (2013)

Journal of Applied Corporate Finance

Theoretical

In the leveraged loan market, bank syndicates heavily rely on non-bank investors. Therefore, the existence and non-existence of these investors marginally affect the banks’ ability to extend C&I credits

Culp and Neves (2017)

Journal of Applied Corporate Finance

Theoretical

United States

The overall risk exposure of commercial banks is being diversified to the non-bank sector. At times of liquidity crisis, shadow banking can help commercial banks mitigate their short-term funding needs

Liang (2016a)

The Chinese Economy

Theoretical

China

Although the shadow banking system in China is considered a helpful complement to the traditional banking sector, it poses risks to the wider financial system. Therefore, reform in the financial system is required as shadow banking develops

Tsai (2016)

The Journal of Development Studies

Theoretical

China

China’s SMEs suffer from a financing gap, and shadow banking keeps filling it with credit supply in the market

Liang (2016b)

Journal of Economic Issues

Theoretical

China

Shadow banks engage in business activities that increase institutional risks. Although shadow banks promote credit-driven financial growth, such growth makes the financial system fragile

Diallo and Al-Mansour (2017)

Research in International Business and Finance

Empirical

(Multiple)

When the shadow banking system was used as a channel, the insurance sector was found to be harmful to the financial stability of a country where shadow banking assets were large

Landau (2019)

SEACEN Financial Stability Journal

Theoretical

The development of shadow banking is related to the need to fill a gap in the financial system. Although the shadow banking system is complex, sophisticated, and potentially dangerous, it is also necessary

Zhou and Tewari (2019b)

Cogent Economics & Finance

Empirical

South Africa

In South Africa, shadow banking negatively affects traditional banks’ profitability. However, it positively impacts the profitability of non-financial firms. Additionally, it has a positive impact on aggregate firm profitability

Peter Watkins (2011)

International Journal of Productivity and Performance Management

Theoretical

Canada

The adoption of shadow banking has proven beneficial to the labor productivity matrix over a large period

Zou et al. (2013)

Quality & Quantity

Empirical

China

The shadow banking system in China develops the overall financial system. Nevertheless, the excessive growth of shadow banking makes the economy fragile. Therefore, the shadow banking system should progress slowly and under the light of the regulatory body

Ilesanmi and Tewari (2019)

Cogent Economics & Finance

Theoretical

Shadow banking in South Africa is beneficial as it provides alternative sources of credit and extends investment opportunities for the economy. However, a lack of transparency, management, and regulations poses a great risk to the economy