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February 4, 2020

February 4, 2020 – The rapid growth of the non-bank financial intermediation sector, formerly called shadow banking, appears to dilute monetary policy effectiveness in Canada and poses a risk to financial stability, according to a new report from the C.D. Howe Institute.

In “Water in the Wine? Monetary Policy and the Impact of Non-bank Financial Intermediaries,” authors Jeremy Kronick and Wendy Wu note while non-bank financial intermediaries (NBFIs) provide alternatives for both depositors and borrowers that improve the functioning of the economy by increasing competition, they are not as closely regulated as traditional financial institutions and deposit insurance does not cover their liabilities.

Jeremy Kronick

Jeremy M. Kronick is Associate Vice President and Director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute.

Wendy Wu

Wendy Wu is Associate Professor at the Department of Economics, Wilfrid Laurier University.