The Regulation of Shadow Banking

Abstract

Arguments for and against the regulation of shadow banking are presented, evaluated and weighed against each other. Two strong argument for the regulation of shadow banking is that the system provides the opportunity for regulated banks to circumvent regulation and that it is a major source of systemic risk. Regulatory proposals are also discussed and evaluated. The conclusion that is reached following the discussion is that it does not make sense to regulate depository institutions while giving shadow banking entities a free hand to do what they like.

Keywords: Shadow Banking, Financial Regulation, Global Financial Crisis

JEL Classification: G2