Shadow Banking Growth and Financial Stability Risks: A Contemporary Systematic Review

Abstract

This article examines how the post crisis growth of shadow banking affects financial stability in an increasingly non-bank centric financial system. It asks under what conditions non-bank financial intermediation amplifies, rather than mitigates, systemic risk, and how regulation and macroprudential policy shape these outcomes. Using a contemporary systematic review of peer reviewed studies published between 2019 and 2023, the article synthesizes evidence on the drivers of shadow banking expansion, its links with bank balance sheets, and its contribution to leverage, liquidity transformation, and interconnectedness. The discussion organizes the literature into three strands covering growth mechanisms, transmission channels to bank soundness and systemic risk, and the design and effectiveness of regulatory and macroprudential responses. The main findings show that shadow banking can provide useful credit and liquidity services, but that its stability implications depend critically on funding structures, cross sector linkages, and the extent to which prudential oversight extends beyond traditional banks.