ABSTRACT
The financial crisis started in August 2007 with a run on US asset-backed commercial paper (ABCP) that quickly spread to the interbank market. ABCP issuers were unable to refinance their assets (including asset-backed securities (ABS) and mortgage loans) with short-term paper as investors were concerned about the quality of the underlying assets due to the collapse of the US housing market. The financial crisis has been the result of a combination of factors that includes search for yields and global imbalances, market misconduct and inadequate regulation. During the financial crisis, the US shadow banking system declined dramatically. This chapter discusses the definition of the shadow banking sector and ways to measure it, and provides estimates for the US and Europe and focuses on the role played by central banks during the financial crisis. The US shadow banking system experienced a sharp decline during the financial crisis, especially for its short-term components such as ABCP and repo.
