Honors Theses

Date of Award

2013

Document Type

Undergraduate Thesis

Department

Finance

First Advisor

Bonnie Van Ness

Relational Format

Dissertation/Thesis

Abstract

Since its rise in the second half of the twentieth century, shadow banking has grown to overtake commercial banking in the financial sector. The health of the economy now relies heavily on the sustainability of shadow banks, as seen with the financial crisis of 2008. This thesis will examine exactly how shadow banking became such a vital component to the economy. It will look at the history of the financial system that was conducive to the growth of shadow banking, with an emphasis on the Banking Act of 1933. Further, it will discuss key financial instruments that are the backbone of shadow banking operations, specifically those that contributed to the banking panic of 2007. It will show that the banking panic of 2007 was the result of a series of runs on systemic financial institutions, which had a similar effect as the bank runs of the Great Depression.

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