Behind the banking crisis: the invisible hand of shadow banking

Professor John Zhang examines the spectre of shadow banks, how they contributed to the banking crisis, and how to avoid repeating past mistakes.

by John Zhang

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Behind the banking crisis: the invisible hand of shadow banking

Image: Getty Images

In the aftermath of the 2007–08 financial crisis, regulators had agreed to reform banking regulations and significantly increased banks’ cash reserves to prevent another financial debacle. However, with the recent suggestions of a banking crisis, it seems that regulatory efforts might not have been as effective as we had hoped.

The question on everyone’s mind right now is why have the worldwide banking reforms put in place after 2008 seemingly fallen so short? The answer may lie in the so-called shadow banking system.

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