skip to content
 

A Systemic Indicator for the Size of Shadow Banking

Presented by: 
M Marsili Abdus Salam International Centre for Theoretical Physics
Date: 
Monday 15th December 2014 - 13:30 to 14:15
Venue: 
INI Seminar Room 1
Abstract: 
Co-authors: Davide Fiaschi (University of Pisa - Department of Economics), Imre Kondor (Parmenides Foundation), Valerio Volpati (Scuola Internazionale Superiore di Studi Avanzati (SISSA))

Using public data (Forbes Global 2000) we show that the asset sizes for the largest global firms follow a Pareto distribution in an intermediate range, that is "interrupted" by a sharp cut-off in its upper tail, where it is totally dominated by financial firms. Pareto distributions are generally traced back to a mechanism of proportional random growth, based on a regime of constant returns to scale. This makes our findings of an "interrupted" Pareto distribution all the more puzzling, because we provide evidence that financial firms in our sample should operate in such a regime. We claim that the missing mass from the upper tail of the asset size distribution is a consequence of shadow banking activity and that it provides an (upper) estimate of the size of the shadow banking system. This estimate -- which we propose as a shadow banking index -- compares well with estimates of the Financial Stability Board until 2009, but it shows a sharper rise in shadow banking activity after 2010. Finally, we propose a proportional random growth model that reproduces the observed distribution, thereby providing a quantitative estimate of the intensity of shadow banking activity.

The video for this talk should appear here if JavaScript is enabled.
If it doesn't, something may have gone wrong with our embedded player.
We'll get it fixed as soon as possible.
University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons