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THE MACROECONOMICS OF SHADOW BANKING

Published online by Cambridge University Press:  10 July 2018

Alberto Botta,
Eugenio Caverzasi and
Daniele Tori
Alberto Botta
Affiliation:
University of Greenwich
Eugenio Caverzasi
Affiliation:
Università Politecnica delle Marche
Daniele Tori*
Affiliation:
The Open University Business School
*
Address correspondence to: Daniele Tori, Department of Accounting and Finance, The Open University Business School, and Greenwich Political Economy Research Centre, Michael Young Building, C1 Wing, Walton Hall, Milton Keynes MK76AA, UK; e-mail: daniele.tori@open.ac.uk
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Abstract

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We propose a simple short-run Post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. To the best of our knowledge, this is the first attempt to broaden purely real-side Post-Keynesian models and their traditional focus on shareholder-value orientation, the financialization of non-financial firms, and the profit-led vs. wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007–08 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution.

Keywords

SecuritizationShadow BankingLeverageRentiers-Led RegimesIncome Distribution

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