Quantify the growth of shadow banking and non-bank financial intermediation, assess interconnection risk between traditional banking and shadow banking sectors, and identify the regulatory gaps that prevent authorities from containing systemic contagion.

Bank for International Settlements data on credit intermediation by non-bank entities, Federal Reserve Financial Stability Report analysis of interconnection risks, and cross-country analysis of non-bank financial depth using IMF Global Financial Stability data. Stress testing framework modeling cascade failures across traditional-shadow banking connections.

Non-bank financial intermediation has grown from 25% of total financial assets in 2008 to 48% globally by 2024. In the US, non-banks now originate 60% of mortgages vs. 40% in 2008. The shadow banking sector has minimal regulatory oversight in most countries, creating a regulatory arbitrage dynamic that drives activity into the least-regulated segments.

Stress testing by the Fed and ECB shows that a 10% shock to non-bank credit markets could trigger 3x contagion to traditional banking due to interconnection through repo markets, prime brokerage arrangements, and fire-sale dynamics.

Lehman Brothers in 2008 was a shadow banking failure that became a systemic banking crisis; the structural conditions for a similar cascade have worsened since then.