The Shadow Banking System — Why It Will Hamper the Effectiveness of Basel III
Journal of International Banking Law and Regulation (July 2015), Forthcoming
14 Pages Posted: 31 Mar 2015 Last revised: 15 May 2015
Date Written: March 1, 2015
This article examines why regulatory arbitrage and the interconnectivity between the traditional banking and shadow banking systems amplified the pro-cyclicality during the global financial crisis of 2007-2009; and discusses why the regulatory focus should turn to reducing the interconnectedness of the two systems in order to prevent systemic risk to the global financial system. This article also predicts that Basel III’s heightened capital requirements will have a limited impact on curbing shadow banking activities and may inadvertently push traditional banks to rely even more on shadow banking in order to sustain their financial position or to generate greater revenue.
Keywords: shadow banking, Basel III capital requirements, Financial Stability Board, financial system crisis, systemic risks
JEL Classification: G01, E06, F04
Suggested Citation: Suggested Citation