Shadow Banking issues

Paul Tucker of Bank of England has been taking the issue of financial stability with seriousness. He ahs been speaking on various issues in the past. In this speech, he looks at shadow banking.

He first looks at various kinds of shadow banks/systems developed before this crisis – money market mutual funds; finance companies; Structured Investment Vehicles and Asset Backed Commercial Paper; the prime brokerage services of securities dealers; the use of securities lending as a financing market; and the repo-financing of mortgage-backed securities.

He says we need to bring them in the regulatory ambit and keep looking out for regulatory arbitrage:

For those forms of financial intermediation that are dependent on banks for leverage and liquidity, it may be that we can develop macroprudential instruments that could be deployed to restrain excess by influencing banks’ supply of credit to them. That is another major area of work.

But where a form of shadow banking provides an alternative home for liquid savings, offering de facto deposit and monetary services, then I think we should be ready to bring them into the banking world itself. In the latest episode, constant-Net Asset Value, instant-access money funds and the prime brokerage units of the dealers seem to have been examples of that.

We have not seen the last of regulatory arbitrage. So we need policies and principles that stand in the way of its weakening the resilience of the system, while allowing enterprise and our capital markets to flourish.

An insightful look into the world of shadow banking.

2 Responses to “Shadow Banking issues”

  1. I am looking for hindi movie Khamosh starring Amol Palekar released in 1985? | Movies Tips Says:

    […] Shadow Banking issues « Mostly Economics […]

  2. Prof Chowdari Prasad Says:

    Commercial Banking has taken several twists and turns over the last few decades. Traditional banking is yet to standardise and reach the rural / needy population in India. In the initial years after independence in 1947, the only parallel was Developmental Banking in organisations like IFCI, ICICI and IDBI. Later a few more were added like NABARD, IDFC, SIDBI, EXIM Bank, IL&FS, IIFCL and so on. In the last two decades or so, new dimensions like Investment Banking, Corporate Banking, Rural Banking, etc have also appeared on the Banking scene. With the economies going up and down Narrow Banking, Lazy Banking and Universal Banking and lately with the advent of Information Technology, Virtual or Internet Banking also came in. Recent times, Retail Banking and Mobile Banking are dominating the scene. And now, to read about Visible Banking and Shadow Banking besides of course, Door Step Banking is very interesting. All these are innovations!

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