Shadow Banking: An Exploratory Study for the Netherlands

When the financial crisis erupted in 2007, it quickly became clear that many vulnerabilities had built up in the system, unnoticed by the financial authorities. Assets that had been considered safe proved to be risky and illiquid, the level and spread of risks were unclear and many market parties suddenly became aware of the enormous leverage within the system. When these vulnerabilities emerged, they proved difficult to control using the available crisis management tools. Much of the credit intermediation process had shifted to non-bank entities and had become fragmented across different jurisdictions. While this 'shadow banking system' was not the immediate cause of the crisis, it underpinned the build-up of vulnerabilities and reduced the scope for effective intervention.