Shadow Banking and Systemic Risk
24 Pages Posted: 6 Feb 2017
Date Written: 2017
What constitutes shadow banking has been described by the international financial institutions, such as FSB, IOSCO, ECB and European Commission. A common characteristic is that several of the shadow banking activities are outside the banking field but are likely to have an impact on the banking sector and then may lead to systemic concerns. Before the financial crisis these were largely out of scope of the regulators. On the basis of recommendations from FSB, the European Union has adopted regulations addressing systemic risk for the main categories of intermediaries or activities. Three main groups emerge: asset management in its different forms (e.g MMFs), specific transactions in the financial markets mainly in the wholesale markets (derivatives, securitisation), and finally insurance. These limits are still open to discussion. In the asset management field, the main concern is a run and a corresponding fire sale, in the markets, disclosure, streamlining of transactions, but also regulating the whole market activity has been the approach. If the regulatory burden has been increased, the risks in the financial system has been reduced.
JEL Classification: G23; G28; K22
Suggested Citation: Suggested Citation