Skip to main content Accessibility help
Hostname: page-component-78dcdb465f-xl52z Total loading time: 0.536 Render date: 2021-04-16T12:17:36.923Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": false, "newCiteModal": false, "newCitedByModal": true }


Published online by Cambridge University Press:  10 July 2018

Alberto Botta
University of Greenwich
Eugenio Caverzasi
Università Politecnica delle Marche
Daniele Tori
The Open University Business School
E-mail address:


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.

© Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below.


Adrian, T. and Ashcraft, A. B. (2016) Shadow banking: A review of the literature. In Jones, G. (ed.), Banking Crises: Perspectives from The New Palgrave Dictionary, pp. 282315. London: Palgrave Macmillan.Google Scholar
Adrian, T. and Shin, S. H. (2010) The Changing Nature of Financial Intermediation and the Financial Crisis of 2007–2009. Federal Reserve Bank of New York Staff Report no. 439.CrossRefGoogle Scholar
Adrian, T., Begalle, B., Copeland, A. and Martin, A. (2013) Repo and Securities Lending. Federal Reserve Bank of New York Staff Report no. 529. December 2011. Available at: Scholar
Bakk-Simon, K., Borgioli, S., Giron, C., Hempell, H., Maddaloni, A., Recine, F. and Rosati, S. (2012) Shadow Banking in the Euro Area: An Overview. ECB occasional paper no. 133.Google Scholar
Bank for International Settlements (2017) Basel III: Finalizing Post-Crisis Reforms. December 2017.Google Scholar
Bezemer, Dirk J. (2016) Towards an ‘accounting view’ on money, banking and the macroeconomy: History, empirics, theory. Cambridge Journal of Economics 40 (5), 12751295.CrossRefGoogle Scholar
Bhaduri, A. (2011) A contribution to the theory of financial fragility and crisis. Cambridge Journal of Economics 35 (6), 9951014.CrossRefGoogle Scholar
Bhaduri, A. and Marglin, S. (1990) Unemployment and the real wage: The economic basis for contesting political ideologies. Cambridge Journal of Economics 14 (4), 375393.CrossRefGoogle Scholar
Bhaduri, A., Raghavendra, S. and Guttal, V. (2015) On the systemic fragility of finance-led growth. Metroeconomica 66 (1), 158186.CrossRefGoogle Scholar
Bindseil, U., Domnick, C. and Zeuner, J. (2015) Critique of Accommodating Central Bank Policies and the ‘Expropriation of the Saver’ - A Review. European Central Bank occasional paper series no. 161.Google Scholar
Botta, A. (2016) The complex inequality-innovation-public investment nexus: What we (don’t) know, what we should know, and what we have to do. Forum for Social Economics, doi: 10.1080/07360932.2016.1150867.CrossRefGoogle Scholar
Botta, A., Caverzasi, E. and Tori, D. (2015) Financial–real-side interactions in an extended monetary circuit with shadow banking: Loving or dangerous hugs? International Journal of Political Economy 44 (3), 196227.CrossRefGoogle Scholar
Caverzasi, E. and Godin, A. (2014) Post-Keynesian stock-flow-consistent modelling: A survey. Cambridge Journal of Economics 39 (1), 157187.CrossRefGoogle Scholar
Caverzasi, E., Botta, A. and Capelli, C. (2018) The Endogeneity of Money and the Securitizing System. Beyond Shadow Banking, Greenwich Papers in Political Economy no. 56.Google Scholar
Cetorelli, N., Mandel, B. H. and Mollineaux, L. (2012) The evolution of banks and financial intermediation: Framing the analysis. Federal Reserve Bank of New York Economic Policy Review 18 (2), 120.Google Scholar
Copeland, A., Duffie, D., Martin, A. and McLaughlin, S. (2012) Key mechanics of the U.S. Tri-Party repo market. Federal Reserve Bank of New York Economic Policy Review 18 (3), 1727.Google Scholar
Coval, J., Jurek, J. and Safford, E. (2009) The economics of structured finance. Journal of Economic Perspective 23 (1), 325.CrossRefGoogle Scholar
Davis, L. (2017) Financialization and investment: A survey of the empirical literature. Journal of Economic Surveys 31 (5), 13321358.CrossRefGoogle Scholar
Dymski, G. (2010) Why the sub-prime crisis is different. Cambridge Journal of Economics 34 (2) 239255.CrossRefGoogle Scholar
Eatwell, J., Mouakil, T. and Taylor, L. (2008) Liquidity, Leverage, and the Impact of Sub-prime Turbulence. Centre for Financial Analysis and Policy, Judge Business School, University of Cambridge.Google Scholar
Epstein, G. and Power, D. (2003) Rentier Income and Financial Crises: An Empirical Examinations of Trends and Cycles in Some OECD Countries. PERI working paper no. 57.Google Scholar
Fein, M. (2013) The Shadow Banking Charade. Available at: Scholar
Financial Stability Board (FSB) (2017) Global Shadow Banking Monitoring Report 2016. 10 May 2017. Available at: Scholar
Gabor, D. (2016) The (impossible) repo trinity: The political economy of repo market. Review of International Political Economy 23 (6), 9671000.CrossRefGoogle Scholar
Getter, E. D. (2014) U.S. Implementation of the Basel Capital Regulatory Framework. Congressional Research Service 7-5700. R42744. Available at: Scholar
Godley, W. and Lavoie, M. (2007) Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. New York: Palgrave Macmillan.CrossRefGoogle Scholar
Gorton, G. and Metrick, A. (2010) Regulating the Shadow Banking System. Brookings Papers on Economic Activity, fall 2010, 261–312.CrossRefGoogle Scholar
Gorton, G. and Metrick, A. (2012) Securitized banking and the run on repo. Journal of Financial Economics 104 (3), 425451.CrossRefGoogle Scholar
Hein, E. (2010) Shareholder value orientation, distribution and growth – short- and medium-run effects in a Kaleckian model. Metroeconomica 61 (2), 302332.CrossRefGoogle Scholar
Hein, E. and van Treeck, T. (2008) Financialisation in Post-Keynesian Models of Distribution and Growth-a Systematic Review. IMK working paper no. 10/2008.Google Scholar
Jacobson, M. (2017) Regulatory Arbitrage and Shadow Banking. Indiana University working paper.Google Scholar
Jeffers, E. and Plihon, D. (2016) What is so special about European shadow banking. FEPS Studies August 2016.Google Scholar
Krippner, G. R. (2005) The financialization of the American economy. Socio-Economic Review 3 (2), 173208.CrossRefGoogle Scholar
Lysandrou, P. (2005) Globalisation as commodification. Cambridge Journal of Economics 29 (5), 769797.CrossRefGoogle Scholar
Mazzucato, M. (2013) Financing innovation: Creative destruction vs. destructive creation. Industrial and Corporate Change 22 (4), 851867.CrossRefGoogle Scholar
McCulley, P. (2007) Teton Reflections. PIMCO Global Central Bank Focus, September 2007.Google Scholar
Mehrling, P. (2011) The new lombard street. How the Fed Became a Dealer of Last Resort. Princeton: Princeton University Press.CrossRefGoogle Scholar
Mian, A. and Sufi, A. (2015) House of Debt: How they (and you) Caused the Great Recession, and How We Can Prevent it from Happening Again. Chicago: University of Chicago Press.Google Scholar
Minsky, H. P. (1975) John Maynard Keynes. New York: Columbia University Press.CrossRefGoogle Scholar
Nakamoto, M. (2007) Citigroup Chief Stays Bullish on Buy-Outs. Financial Times Online, July 9, 2007 10:08 pm. Available at: Scholar
Nersisyan, Y. and Wray, R. (2010) The global financial crisis and the shift to shadow banking. European Journal of Economics and Economic Policy: Intervention 7 (2), 377400.Google Scholar
Nikolaidi, M. (2015) Securitization, Wage Stagnation and Financial Fragility: A Stock-Flow Consistent Perspective. Greenwich Papers in Political Economy no. 27.Google Scholar
Noeth, B. J. and Sengupta, R. (2011) Is shadow banking really banking? The Regional Economist, Federal Reserve Bank of St. Louis October, 8–13.Google Scholar
Onaran, Ö., Stockhammer, E. and Grafl, L. (2011) Financialization, income distribution and aggregate demand in the US. Cambridge Journal of Economics 35 (4), 637661.CrossRefGoogle Scholar
Onaran, Ö. and Obst, T. (2016) Wage-led growth in the EU15 member-states: The effects of income distribution on growth, investment, trade balance and inflation. Cambridge Journal of Economics 40 (6), 15171551.CrossRefGoogle Scholar
Orhangazi, Ö. (2008) Financialization and capital accumulation in the non-financial corporate sector: A theoretical and empirical investigation on the U.S. Economy: 1973–2003. Cambridge Journal of Economics 32 (6), 863886.CrossRefGoogle Scholar
Perotti, E. and Suarez, J. (2009) Liquidity Insurance for Systemic Crises. CEPR Policy Insight, no. 31.Google Scholar
Piketty, T. (2014) Capital in the 21st Century. Cambridge, MA and London: Harvard University Press.Google Scholar
Pozsar, Z., Ashcraft, A., Adriand, T. and Boesky, H. (2013) Shadow banking. Federal Reserve Bank of New York Economic Policy Review 19 (2), 116.Google Scholar
Segoviano, M., Bradley, J., Lindner, P. and Blankenheim, J. (2015) Securitization: The Road Ahead. IMF Staff discussion paper no. 15/01.CrossRefGoogle Scholar
Skott, P. and Ryoo, S. (2008) Macroeconomic implications of financialisation. Cambridge Journal of Economics 32 (6), 827862.CrossRefGoogle Scholar
Slacalek, J. (2009) What Drives Personal Consumption? The Role of Housing and Financial Wealth. ECB working paper no. 1117.CrossRefGoogle Scholar
Stockhammer, E. (2004) Financialization and the slowdown of accumulation. Cambridge Journal of Economics 28 (5), 719741.CrossRefGoogle Scholar
Stockhammer, E. and Wildauer, R. (2016) Debt-driven growth? Wealth, distribution and demand in OECD countries. Cambridge Journal of Economics 28 (6), 16091634.CrossRefGoogle Scholar
Tori, D. and Onaran, Ö. (2017) The Effects of Financialisation and Financial Development on Investment: Evidence from Firm-Level Data in Europe. Greenwich Papers in Political Economy no. 44.CrossRefGoogle Scholar
Tymoigne, E. (2009) Securitization, Deregulation, Economic Stability, and Financial Crisis, Part I: The Evolution of Securitization. Levy Economics Institute working paper no. 573.CrossRefGoogle Scholar

Altmetric attention score

Full text views

Full text views reflects PDF downloads, PDFs sent to Google Drive, Dropbox and Kindle and HTML full text views.

Total number of HTML views: 0
Total number of PDF views: 345 *
View data table for this chart

* Views captured on Cambridge Core between 10th July 2018 - 16th April 2021. This data will be updated every 24 hours.

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

Available formats

Reply to: Submit a response

Your details

Conflicting interests

Do you have any conflicting interests? *