THE SHADOW BANKING SYSTEM AND ITS ROLE IN TRIGGERING THE GLOBAL CRISIS

Abstract

Financial innovation, the deficiencies of corporate governance, moral hazard, easy money policies, government inefficiency, and mainly the activity of the shadow banking system have all played a critical role in setting off the global financial crisis. Due to the imbalances it has triggered, the shadow banking system has been at the core of the most widespread and profound world crisis of all time, as the attempt to use financial capital as efficiently as possible by resorting to “innovative” products has significantly contributed to the advent of the financial crisis. The present crisis has already proved that the banking and financial activity can have a deeply disturbing impact on our economy, but the flexibility of lending mechanisms and the various reactions of the players on the market that are otherwise inherent in a dynamic economic system, cannot exist in the absence of banking mechanisms.

Keywords

• Financial crisis
• Financial system
• Shadow banks
• Financial innovations