Chasing Shadows: Europe Prepares to Regulate Shadow Banking

Abstract:     
This editorial examines global efforts to regulate the shadow banking system, in particular the green paper released by the European Commission in March 2012. It suggests that the financial market landscape in Europe is currently in flux and large swings in market activity — either through financial innovation, changing market preferences or regulatory arbitrage — may unravel the work done by regulators in shoring up their financial systems. The editorial highlights that shadow banking could be a source of systemic concern in the future as more stringent regulation and supervision pushes banks into areas beyond the traditional boundaries of banking in order to improve their underlining profitability. It also outlines the difficult balancing act facing regulators in ensuring that the shadow banking system is safe and robust while also flexible and attractive enough to continue to provide essential services to the economy.

Number of Pages in PDF File: 5

Keywords: Shadow banking, financial regulation, European banking system

JEL Classification: G18, G28, G20, G21, G29

Accepted Paper Series