Delivering effective regulation of the complex and diverse shadow banking sector is a real challenge for policy makers. They have also a very difficult job to mitigate systemic risk without harming activities which are desirable for the real economy. Because the shadow banking sector had a strong adaptive capacity, regulation should also be comprehensive, to reduce regulatory arbitrage.
Therefore, many consultation and policy documents were published in 2012. Here are some references to papers dealing with this topic :
- EC green paper for public consultation (March 19, 2012): http://ec.europa.eu/internal_market/bank/docs/shadow/green-paper_en.pdf
- EC press release on regulating over-the-counter derivatives (March 29, 2012): http://europa.eu/rapid/press-release_MEMO-12-232_en.htm
- Credit Utility’s contribution to EC public consultation (June 2012):
- Lord Adair Turner, executive chairman of the Financial Services Authority, on shadow banking (September 8, 2012): www.imf.org/External/Pubs/FT/GFSR/2012/02/index.htm
- IMF Global Financial Stability Report (October 2012): http://www.imf.org/External/Pubs/FT/GFSR/2012/02/index.htm (notably chapters 3 & 4)
- FSB timeframe for drafting shadow banking regulations (November 5, 2012): http://www.bloomberg.com/news/2012-11-05/global-regulators-set-2013-deadline-for-money-market-fund-rules.html
- IOSCO final report (Nov 16, 2012): Global developments in securitization regulation http://www.iosco.org/library/pubdocs/pdf/IOSCOPD394.pdf
- FSB Consultative Document: Strengthening Oversight and Regulation of Shadow Banking (Nov 18, 2012):
- An Integrated Overview of Policy Recommendations
- A Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities – http://www.financialstabilityboard.org/publications/r_121118a.pdf
- A Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos – http://www.financialstabilityboard.org/publications/r_121118b.pdf
- Global Shadow Banking Monitoring Report 2012
- European Parliament resolution on Shadow Banking adopted on Nov 20, 2012 :
The EU’s shadow banking response up to end 2011 focused mainly upon introducing a central counterparty to the over-the-counter derivatives market as well as requiring incremental capital for banks’ dealings with “shadow” banks.
The last FSB consultative document, published on November 18, sets out a number of recommendations across specific areas of concern, as identified in 2011. These focused on reducing risk spill-overs from shadow banking into the regular banking sector, mitigating systemic risks within the shadow banking sector, strengthening the money market funds framework, and dampening the systemic risks associated with securitization, repos and securities lending.
Considering all these recommendations
- What form of regulation will best reduce shadow banking’s systemic risks?
- How should different regulatory initiatives engage and better align with each other ?
- Will proposed regulations also encourage desirable credit risk transfer activities ?
- Should regulators move towards a functional regulation for all financial institutions, based on activities instead of regulatory status (bank, insurer,etc) ?