Conversely, evidence that the financial cycle is to a large extent driven by non-bank activities would forcefully suggest the need to enlarge the perimeter of financial institutions subject to regulatory action. More empirical research on the main drivers of the “disconnect” between business and financial cycles would be useful.
Traditional banks and shadow banks are interconnected not only via direct exposures but also via exposures to common markets. Channels of propagation of possible shocks in the shadow banking sector to traditional banks is another analytical avenue worthwhile exploring. Research in this respect is on-going at the ECB.