Mapping exposures of EU banks to the global shadow banking system

Abad, J, D'Errico, M, Killeen, N, Luz, V, Peltonen, T, Portes, R and Urbano, T (2021) Mapping exposures of EU banks to the global shadow banking system. Journal of Banking and Finance, 134 (106168). ISSN 0378-4266

Abstract

This paper provides a unique snapshot of the asset exposures of EU banks to shadow banking entities within the global financial system. Drawing on a rich and novel dataset, we show that 60 per cent of the EU banks’ exposures are towards non-EU entities, particularly US-domiciled shadow banking entities. We assess the degree of concentration across different types of shadow banking counterparties. We show that while banks’ exposures are diversified at the individual level, this diversification leads to high overlap across different types of shadow banking entities, with consequent systemic risk. We also examine how bank- and country-level characteristics relate to the exposures of EU banks to shadow banking entities. Our results emphasise the importance of monitoring these cross-border and cross-sector exposures and closing remaining data gaps.