Show Summary Details

Page of

PRINTED FROM OXFORD HANDBOOKS ONLINE ( © Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy and Legal Notice).

date: 25 February 2021

Abstract and Keywords

This article describes the rise and fall of the parallel banking system based on securitisation. In essence, the parallel banking system emerged as a result of de-regulation and disintermediation, and led to a period of very high and, in retrospect, unsustainable, leverage. Its development was facilitated by the creation of new financial instruments (notably credit default swaps and collateralised debt obligations). Instead of keeping loans on their books, banks and other financial players were originating them, bundling them together, slicing into tranches, and selling these tranches to other investors, such as pension funds, insurers, etc., with different and complementary risk appetites. While this system supported the real economy for a long time – especially consumer, real estate, and leveraged finance – it contributed to the build-up of leverage in the global capital markets and subsequent worldwide crisis.

Keywords: parallel banking system, securitisation, credit default swaps, collateralised debt obligations, risk management, leverage, capital markets

Access to the complete content on Oxford Handbooks Online requires a subscription or purchase. Public users are able to search the site and view the abstracts and keywords for each book and chapter without a subscription.

Please subscribe or login to access full text content.

If you have purchased a print title that contains an access token, please see the token for information about how to register your code.

For questions on access or troubleshooting, please check our FAQs, and if you can''t find the answer there, please contact us.