Risks of Shadow Banking Entities’ Reliance on Short-Term Funding:

• Liquidity Mismatches: Funding long-term, illiquid assets with short-term liabilities can lead to runs during crises.
• Market Contagion: Asset fire sales during liquidity crunches depress market prices, spreading distress.
• Interconnectedness with Banks: Stress in shadow banking can spill over to traditional banks, amplifying systemic risk.
• Opacity and Regulation Gaps: Lack of transparency and oversight can hide vulnerabilities, delaying corrective action.
• Procyclicality: Dependence on market funding exacerbates booms and busts in financial markets.
• Collateral Valuation Risk: Declines in collateral values trigger margin calls, worsening liquidity shortages.
• Increased Credit Risk: Shadow banks often assume higher credit risk without the safeguards of traditional banks.

Impact on Systemic Stability During a Crisis:

• Funding Runs: Investors withdraw en masse, disrupting liquidity and operational viability.
• Asset Devaluation: Forced selling leads to broad declines in asset values and market confidence.
• Banking Sector Strain: Exposure to shadow banking shocks reduces regulated banks’ ability to lend.
• Credit Market Disruption: Reduced credit availability exacerbates economic contractions.
• Delayed Crisis Detection: Lack of regulation obscures risks until they cascade into broader instability.

I thought you answered your question yourself. :)

Just have a look for the following links:

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