Shadow banking and the financial side of financialisation

Abstract

This paper sheds some light on the nature and functioning of shadow banking, with a special focus on its role in the evolution of financialisation as well as in sharpening income and wealth inequality. On the one hand, it discusses how securitisation has allowed traditional banks to expand their business, providing the financial system with the 'raw materials' for the manufacturing of complex structured financial products. On the other hand, it questions the view of traditional and shadow banks as two parallel and alternative systems, claiming that financialisation did not alter the role of commercial banks as money creators, but rather diverted endogenously created money to the financial sphere, feeding its expansion. Finally, our work discusses some policy options for the de-financialisation of the economy through more progressive taxation of the financial sector, as well as a stronger engagement to reduce income and wealth inequality.