The paper analyses the specificities and drivers of the shadow banking (SB) system
in eleven Central and Eastern European (CEE) EU member states for 2004-2019. It contributes
to the understanding of the CEE SB in terms of how the structural features of the
financial and banking system determine its development. The SB system of the region
is much smaller, and its structure is less complex and significantly different from
that of developed European countries: the role of capital market intermediaries is
smaller, while the role of nonbank lenders is larger. Specific features of the CEE
financial system include the dominance of banks, the relative underdevelopment of
capital markets, the dominance of foreign ownership, and, until the mid-2010s, the
reliance on foreign interbank funding in several countries. Indeed, as the results
of our panel regression show, regional specificities in the structural characteristics
of financial systems are key for the development of the SB.
