Shifting risks and the search for yield in financial markets

Policies and regulatory responses to crises tend to roll financial excesses into other sectors or regions. This chapter argues that the response to the 2008 crisis has rolled the risk into the shadow banking and corporate bond sectors. Shadow banks intermediate credit between cash-rich and cash-poor investors in their bid to reuse securities and to gain access directly or synthetically to higher-yield and lower-risk alternative products in a world of low interest rates and rising longevity risk. At the root of the problem are a number of implicit promises that have been made to investors that are unlikely to be met in the absence of structural change and better regulation.