Experience Stern | News & Events

Excerpt from Vox -- "The problem with shadow banking then is that while it makes the good times better, it also makes the bad times worse. In the language of economics, shadow banking imposes a negative externality on the rest of the economy. During the boom, individual institutions have little incentive to take into account the impact of their actions on the severity of the bust. Shadow banking allows them to fund riskier assets more cheaply, but doing so decreases the economy’s supply of good collateral when times get rough."

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