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Financial Stability, New Macro Prudential Arrangements and Shadow Banking: Regulatory Arbitrage and Stringent Basel III Regulations

Business Expert Press June 2013 ISBN 13 978 1 60649 700-5

27 Pages Posted: 8 Jun 2011 Last revised: 29 Apr 2014

Marianne Ojo

George Mason University; American Accounting Association

Date Written: June 8, 2011

Abstract

Despite Basel III’s efforts to address capital and liquidity requirements, will the risks linked to regulatory arbitrage increase as a result of Basel III’s more stringent capital and liquidity rules?

As well as Basel III reforms which are geared towards greater facilitation of financial stability on a macro prudential basis, further efforts and initiatives aimed at mitigating systemic risks – hence fostering financial stability, have been promulgated through the establishment of the De Larosiere Group, the European Systemic Risk Board, and a working group comprising of “international standard setters and authorities responsible for the translation of G20 commitments into standards.”

This paper aims to investigate the impact of Basel III on shadow banking and its facilitation of regulatory arbitrage as well as consider the response of various jurisdictions and standard setting bodies to aims and initiatives aimed at improving their macro prudential frameworks. Furthermore, it will also aim to illustrate why immense work is still required at European level – as regards efforts to address systemic risks on a macro prudential basis. This being the case even though significant efforts and steps have been taken to address the macro prudential framework. In so doing, the paper will also attempt to address how coordination within the macro prudential framework – as well as between micro and macro prudential supervision could be enhanced.

Keywords: counter party risks, liquidity, European Systemic Risk Board, stability, systemic risk, shadow banking, central banks, regulatory arbitrage, OTC derivatives, European Central Bank, supervision, coordination

Suggested Citation

Ojo, Marianne, Financial Stability, New Macro Prudential Arrangements and Shadow Banking: Regulatory Arbitrage and Stringent Basel III Regulations (June 8, 2011). Business Expert Press June 2013 ISBN 13 978 1 60649 700-5 . Available at SSRN: https://ssrn.com/abstract=1859543 or http://dx.doi.org/10.2139/ssrn.1859543

Marianne Ojo (Contact Author)

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

American Accounting Association

5717 Bessie Drive
Sarasota, FL 34233-2399
United States

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