Problem Statement
Persistent downturns in the global economy have created renewed interest in the systematic risk, a concept that describes unpredictable breakdowns in financial systems. Systemic risks can arise because of correlated defaults among industry players such as banks, insurance companies, shadow banking institutions and other financial service providers(Allen & Gale, 2000). Recent studies have revealed a strong correlation between shadow banking and systematic risks. This research proposal outlines a methodology for understanding the relationship between shadow banking and systemic risks.
Research Aims and Objectives
The objectives of this study are:
i. To explore how systemic risks are defined in the literature as well as by shadow banking institutions.
ii. To explore how shadow banking causes systemic risks in the financial sector.
iii. To determine ways of countering systemic risks arising from shadow banking.
Research Methodology
The current study will be based on systematic review of the literature on the relationship between shadow banking and systematic risks in financial systems. Articles for review will be obtained from online databases as well as reports from major financial institutions and regulatory agencies.
Justification of the Study and Expected Contributions
This study seeks to determine the correlation between shadow banking and systemic risk. In this regard, the study will help financial institutions understand whether shadow banking exacerbates vulnerabilities of financial systems to systemic risks. The study will also identify other factors that contribute to the buildup of systemic risks and provide a conceptual explanation linking these factors to shadow banking. The findings of the study will provide useful insights that can be used by financial institutions to counter risks.
Reference
Allen, F. & Gale, D. (2000). Financial Contagion. Journal of Political Economy, 108(1), 1-33.
