The Economics of Non-bank Financial Intermediation: Why Do We Need to Fill the Regulation Gap?

83 Pages Posted: 22 Jul 2021

Date Written: June 25, 2021

Abstract

This paper presents an overall analysis of the economics of non-bank financial intermediation, and argues that the financial stability concerns stemming from this sector support the need to fill the regulation gap that exists with respect to other segments. It examines the structure of markets, the economic incentives of the agents involved, and the institutional aspects characterizing this form of intermediation as compared with that performed by banks. The policy framework developed so far has been based mainly on micro-prudential tools, looking at individual institutions and activities. The focus of the regulatory actions should not be (or should not only be) the stability of individual entities. Financial regulators should pay more attention to the effects that the collective actions and activities of non-bank financial entities may have on the financial system as a whole and on the real economy. I find that the effectiveness of micro-prudential tools is strengthened if they are accompanied by a framework containing policy measures to address systemic risk.

Keywords: financial crises, international regulation

JEL Classification: F53, G01, G20

Suggested Citation

Trapanese, Maurizio, The Economics of Non-bank Financial Intermediation: Why Do We Need to Fill the Regulation Gap? (June 25, 2021). Bank of Italy Occasional Paper No. 625, Available at SSRN: https://ssrn.com/abstract=3891639 or http://dx.doi.org/10.2139/ssrn.3891639

Maurizio Trapanese (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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