Since the outbreak of the financial crisis in 2007, opinion has been divided over whether its root cause was credit arbitrage or safe asset demand. New research on the European banks' role in the crisis may finally help to resolve the issue. Far from being peripheral players in the crisis,...

There is no doubt that the shadow banking system played an important role in the global financial crisis. What is in question is whether it played a causal or merely amplifying role. This paper argues in favour of the latter. Focusing specially on the process of the production of CDOs through...