Abstract We explore the impact of country culture of individualism and uncertainty avoidance on the development of shadow banking throughout the world. We find that countries with high individualism and low uncertainty avoidance have higher shadow banking activities. Our results are robust to alternative and time‐varying culture measures, alternative measures for shadow banking, different model specifications and endogeneity concerns. In addition, level of democracy in a country has a significantly positive moderating role in determining the relation between individualism and shadow banking.
Dandapani et al. (2026) studied this question.