Shadow banking, relationship banking, and the economics of depression


  • Antonio Bianco Sapienza University of Rome



liquidity risk, animal spirits, originate-to-hold, originate-to-distribute, securitisation, financial sustainability, ex ante impact evaluations


The paper explores whether a theory of banks doing ‘finance through money creation’ implies a reconsideration of demand-side macro theory as well. To this aim, a simple methodological accounting model of the influence of financial markets over the real economy is presented. The model allows a tidy comparison of relationship and shadow banking, interpreted as alternative schemes of liquidity (not credit) risk management. The model emphasizes the interdependencies in entrepreneurs’ animal spirits, liquidity risk management schemes adopted by financial institutions, and effective demand of households. The underlying idea is that fluctuations in the composition of property incomes trigger fluctuations in non-financial investment that, in turn, drive fluctuations in spending. The article finds that both relationship and shadow banking must have a pro-cyclical impact, and differences are essentially based on different liquidity risk management aggregate cost functions. The model developed here suggests that securitisation does not per se affect the financial sustainability of the growth process, but regulatory measures aimed at checking predatory lending and re-securitisation activities are needed to avoid possible adverse impacts on animal spirits.

JEL codes: E44, G20, O16


ARNOLD P.J. (2009), “Global Financial Crisis: The Challenge to Accounting Research”, Accounting, Organizations and Society, vol. 34, pp. 803-809.

BIANCO A. (2014), “Securitisation, Fragility, and Regulation”, Global and Local Economic Review, vol. 18 n. 2, pp. 79-108.

—— (2015), “Hicks’s Thread (Out of the Equilibrium Labyrinth)”, Cambridge Journal of Economics, available at doi:10.1093/cje/bev026.

—— (forthcoming), “Out of Equilibrium: Grounds, Basics, Policies and Accounts”, International Journal of Computational Economics and Econometrics, in press; available at

BANK OF ENGLAND (BOE) (2014), “Should the Availability of UK Credit Data be Improved?”, Discussion Paper, May, London: Bank of England.

BORD V.M. and SANTOS J.A.C. (2012), “The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation”, FRBNY Economic Policy Review, July, New York: Federal Reserve Bank of New York.

BORIO C. (2013), “The Great Financial Crisis: Setting Priorities for New Statistics”, BIS Working Papers, n. 408, Basel: Bank for International Settlements.

BRUNNERMEIER M.K. (2009), “Deciphering the Liquidity and Credit Crunch 2007-2008”, Journal of Economic Perspectives, vol. 23 n. 1, pp. 77-100.

BRUNNERMEIER M.K. and SANNIKOV Y. (2014), “A Macroeconomic Model with a Financial Sector”, The American Economic Review, vol. 104 n. 2, pp. 379-421.

CECCHETTI S.G. and KHARROUBI E. (2015), “Why Does Financial Sector Growth Crowd Out Real Economic Growth?”, BIS Working Papers, n. 490, Basel: Bank for International Settlements.

COWAN C. (2003), “Hearing on Protecting Homeowners: Preventing Abusive Lending while Preserving Access to Credit”, Statement on behalf of the American Securitisation Forum before the US House of Representatives, Washington (DC): American Securitisation Forum; available at:

EUROSTAT (2013), European System of Accounts, ESA 2010, DG-Eurostat, Brussels: European Commission.

FONTANA G. (2004), “Hicks on Monetary Theory and History: Money as Endogenous Money”, Cambridge Journal of Economics, vol. 28, pp. 73-88.

GENNAIOLI N., SHLEIFER A. and VISHNY R.W. (2013), “A Model of Shadow Banking”, The Journal of Finance, vol. 68 n. 4, pp. 1331-1363.

GORTON G. and METRICK A. (2012), “Securitisation”, NBER Working Paper Series, n. 18611, Cambridge (MA): National Bureau of Economic Research.

JAKAB Z. and KUMHOF M. (2015), “Banks Are not Intermediaries of Loanable Funds – And why this Matters”, Working Paper, n. 529, London: Bank of England.

KEYNES J.M. ([1930] 1972), A Treatise on Money: The Applied Theory of Money, The Collective Works of John Maynard Keynes, vol. 6, London: Macmillan

—— ([1936] 1973), The General Theory of Employment, Interest and Money, The Collective Works of John Maynard Keynes, vol. 7, London: Macmillan.

Kregel J. (2011), “Uscire dalla crisi finanziaria statunitense: la politica domina l’economia nella Nuova Economia Politica”, Moneta e Credito, vol. 64 n. 253, pp. 15-30.

LUCK S. and SCHEMPP S. (2014), “Banks, Shadow Banking, and Fragility”, ECB Working Paper Series, n. 1726, Frankfurt am Main: European Central Bank.

MARCHIONATTI R. (1999), “On Keynes’ Animal Spirits”, Kyklos, vol. 52 n. 3, pp. 415-439.

MCLEAY M., RADIA A. and THOMAS R. (2014), “Money Creation in the Modern Economy”, Bank of England Quarterly Bulletin, vol. 54 n. 1, pp. 14-27.

MEHRLING P. (1999), “The Vision of Hyman P. Minsky”, Journal of Economic Behaviour and Organization, vol. 39, pp. 129-158.

—— (2010), The New Lombard Street. How the Fed Became the Dealer of Last Resort, Princeton: Princeton University Press.

MEHRLING P., POZSAR Z., SWEENEY J. and NEILSON D.H. (2013), “Bagehot Was a Shadow Banker: Shadow Banking, Central Banking, and the Future of Global Finance”, Social Science Research Network, November 5, available at:

MONTANARO E. and TONVERONACHI M. (2011), “A Critical Assessment of the European Approach to Financial Reforms”, PSL Quarterly Review, vol. 65 n. 260, pp. 53-77.

MOREIRA A. and SAVOV A. (2014), “The Macroeconomics of Shadow Banking”, NBER Working Paper Series, n. 20335, Cambridge (MA): National Bureau of Economic Research.

NICCOLI A. and MARCHIONNE F. (2012), “The Supreme Subprime Myth: The Role of Bad Loans in the 2007-2009 Financial Crisis”, PSL Quarterly Review, vol. 65 n. 260, pp. 53-77.

PIKETTY T. (2014), Capital in the Twenty-First Century, Cambridge (MA): Harvard University Press.

POZSAR Z. (2014), “Shadow Banking: The Money View”, Office of Financial Research Working Paper, n. 14-04, Washington (DC): US Treasury.

—— (2015), “A Macro View of Shadow Banking: Levered Betas and Wholesale Funding in the Context of Secular Stagnation”, Social Science Research Network, January 31, available at:

POZSAR Z., ADRIAN T., ASHCRAFT A. and BOESKY H. (2010), “Shadow Banking”, Staff Reports, n. 458, revised 2012, Federal Reserve Bank of New York.

SHIN H.S. (2010), Risk and Liquidity, Oxford: Clarendon Press.

SUZUKI T. (2003), “The Epistemology of Macroeconomic Reality: The Keynesian Revolution from an Accounting Point of View”, Accounting, Organizations and Society, vol. 28, pp. 471-517.

TONVERONACHI M. (2012), “Financial Re-regulation at a Crossroads: How the European Experience Strengthens the Case for a Radical Reform Built on Minsky’s Approach”, PSL Quarterly Review, vol. 65 n. 263, pp. 335-383.

WERNER R.A. (2014), “Can Banks Individually Create Money Out of Nothing? The Theories and the Empirical Evidence”, International Review of Financial Analysis, vol. 36, pp. 1-19.




How to Cite

Bianco, A. (2016). Shadow banking, relationship banking, and the economics of depression. PSL Quarterly Review, 68(275).