The Shadow Banking System: Creating Transparency In The Financial Markets (palgrave Macmillan Studies In Banking And Financial Institutions)

Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. Cover 1 Title 4 Copyright 5 Contents 6 List of Tables 9 Introduction 10 1 General Observations 22 1.1 The identification of the phenomenon 22 1.2 The traditional definitions of the shadow banking system: the guidelines of the FSB and the statement of the G20 26 1.3 The directions of certain central banks 30 1.4 The routes of European institutions 32 1.5 The path of emerging countries 35 1.6 The interpretations of the phenomenon 35 1.7 The different outcomes of the monetary and supervisory perspectives 39 1.8 The boundaries of the shadow banking system 40 1.8.1 Money laundering, tax evasion, and other forms of “black market” 40 1.8.2 Prohibited shadow operations 44 2 The Shadow Banking System as an Alternative Source of Liquidity 46 2.1 The economic determinants of the shadow banking system 46 2.2 Information asymmetries 51 2.3 Opacity, pro-cyclicality, and system instability 53 2.4 Methods for classification of the phenomenon 57 2.5 Is this economic freedom or escape from regulation? 62 2.6 The global nature and the riskiness of the phenomenon 64 2.7 New freedoms and their problematic nature 67 3 Shadow Banking Entities 71 3.1 Special purpose vehicles 71 3.2 Shadow banks 76 3.3 Other shadow banking entities 79 3.4 Shadow funds 82 3.5 The particular role of money market funds 84 4 Shadow Business of Banks, Insurance Companies, and Pension Funds 87 4.1 Multiphasic shadow credit intermediation process and the roles of traditional operators 87 4.2 The role of banks in the shadow banking system 90 4.3 The dysfunctions of internal controls and weaknesses of other safeguards 94 4.4 The action of insurance companies 96 4.5 The involvement of pension funds 101 5 Shadow Banking Operations 104 5.1 Shadow credit intermediation process 104 5.2 Undetermined (contents) and unconfined (boundaries) of shadow banking operations 107 5.3 The operations of the credit transformation 110 5.4 New securitization techniques 111 5.5 Liquidity, maturity transformation, and financial leverage 114 5.6 Ratings (in the shadows) 116 6 Non-Standard Operations in the Shadow Banking System 122 6.1 The use of securities lending and borrowing, and repurchase agreements 122 6.2 The offering of the asset-backed commercial paper, asset-backed securities and collateralized debt obligations 126 6.3 Peculiarities of derivatives 129 6.4 The shadow banking operations of sovereign states 133 6.5 The shadow banking operations of credit institutions 136 7 Shadow Banking Risks and Key Vulnerabilities 139 7.1 Areas of risk in the shadow banking system 139 7.2 Risk factors 142 7.3 Operators and internal policies of risk management 145 7.4 Operational freedoms inside the shadow banking system 148 7.5 The risks of organizations 149 7.6 The risks of governance 151 7.7 The impact of European regulation on the shadow banking risks 153 7.8 The risks of the entities “too big to fail” 154 7.9 The exogenous risks 156 7.10 The particular implication of monetary policies 160 8 The Shadow Banking System and the Need for Supervision 163 8.1 Checks and balances in the shadow banking system 163 8.2 Economic determinants of the supervisory system on shadow banking 165 8.3 The shadow banking system in the European internal market 167 8.4 The role of European institutions 169 8.5 New supervision on the shadow banking system in the European Union: the action of the European Commission 170 8.6 The action of the European System of Financial Supervision 172 8.7 The responsibilities of the European Supervising Authorities 174 8.8 The tasks of the European Banking Union 176 8.9 The impact of the new targeted longer-term refinancing operations of the European Central Bank 180 8.10 Evolutionary trends of European supervision (following Directive 2014/65/EU) 181 8.11 The role of global regulators: the World Bank and the International Monetary Fund 184 8.12 Limited effects of the supervision designed by the Financial Stability Board 187 Conclusions 191 Notes 194 Index 244 Front Matter....Pages i-viii Introduction....Pages 1-12 General Observations....Pages 13-36 The Shadow Banking System as an Alternative Source of Liquidity....Pages 37-61 Shadow Banking Entities....Pages 62-77 Shadow Business of Banks, Insurance Companies, and Pension Funds....Pages 78-94 Shadow Banking Operations....Pages 95-112 Non-Standard Operations in the Shadow Banking System....Pages 113-129 Shadow Banking Risks and Key Vulnerabilities....Pages 130-153 The Shadow Banking System and the Need for Supervision....Pages 154-181 Conclusions....Pages 182-184 Back Matter....Pages 185-238 The book shows the fundaments of the shadow banking system and its entities, operations and risks. Focusing on the regulatory aspects, it provides an original view that is able to demonstrate that the lack of supervision is a market failure.