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Since the 2008 monetary crisis, the shadow banking sector has expanded substantially, aided by the withdrawal and constraints faced by traditional banks. This evolution has led to an important question: as these shadow banks take on greater roles, how do they impact not only the financial system but also the economy at large?
The Positive Impact of Shadow Banking
Post-2008, shadow banks have offered some relief by stepping into roles vacated by regulated banks, helping to mitigate credit redistribution and provide necessary liquidity in the financial markets. In essence, they have created a channel for capital to flow into the economy, designated as marginal buyers of important financial assets like U.S. Treasuries.