The aim of this thesis is to examine shadow banking, paying particular attention to Europeansecuritisation markets, collateral intermediation, and money market funds. The term wasintroduced following the 2007-2008 financial crisis to describe credit intermediationactivities undertaken partially or fully outside the regulated banking system, without explicitaccess to public sector backstops. The shadow banking sector’s dependency on short-term,wholesale funding renders it vulnerable to market turmoil, which in turn can affect thebroader financial system through the sector’s close connection with financial institutions andkey markets.In order to contextualize this topic the first chapter describes how credit intermediation isconducted within certain sectors of the shadow banking system, and what supply anddemand-side factors precipitated the rise of the system. The initial chapter also offers a briefoverview of shadow banking’s role in the financial crisis, since the evolution of the term andthe on-going discourse surrounding it is closely tied to thestressed market conditionswitnessed at the time. While initially, the thesis is most relevant in a US context since it wasthere the financial innovations discussed have been developed and widely adopted, thesecond chapter provides an assessment ofthe Europeansystem. First, by performing amacro-mapping exercise aimed at providing a broad measure of the shadow banking system,and second, by conducting a more detailed analysis of institutions that serve as the focus forthis thesis.The thesis demonstrates that European shadow banking institutionsfundthe extension ofcredit, that they are important intermediaries in the short-term funding markets, and that theysupport a host of financial transactions. Although prevailing commentary on shadowbanking has highlighted the systemic risk brought about by shadow banking, this thesisseeks to take a balanced view of the sector, also emphasising its positive impact on overallmarkets.
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