The Shadow Banking System — Why It Will Hamper the Effectiveness of Basel III

Journal of International Banking Law and Regulation (July 2015), Forthcoming

University of Hong Kong Faculty of Law Research Paper No. 2015/008

14 Pages Posted: 31 Mar 2015 Last revised: 15 May 2015

See all articles by Emily Lee

Emily Lee

The University of Hong Kong - Faculty of Law

Date Written: March 1, 2015

Abstract

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

Lee, Emily, The Shadow Banking System — Why It Will Hamper the Effectiveness of Basel III (March 1, 2015). Journal of International Banking Law and Regulation (July 2015), Forthcoming; University of Hong Kong Faculty of Law Research Paper No. 2015/008. Available at SSRN: https://ssrn.com/abstract=2587628

Emily Lee (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01257

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