The Shadow Banking System: Creating Transparency in the by Valerio Lemma

By Valerio Lemma

The ebook indicates the fundaments of the shadow banking procedure and its entities, operations and dangers. concentrating on the regulatory points, it presents an unique view that's capable of reveal that the shortcoming of supervision is a industry failure.

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More generally, it is necessary to observe the conditions of competition that qualify the market structure of shadow banking in comparison to that of traditional banking. There is no doubt, in fact, that the financial regulation allows entities that want to offer their liquidity (and, therefore, ask for short-term investment instruments) to operate—alternatively or jointly—in both markets. e. rates). 12 This applies, in particular, to the increase in yields and, therefore, to the reduction in intermediation margins of banks (with obvious negative impact on profits and capital requirements of the latter).

Obviously, these operations avoid some of the safeguards imposed by the Basel Accords. There is no doubt, in fact, that the shadow credit intermediation process does not fall within the actual scope of the regulation of capital adequacy. Thus, this process is not a way to breach the rule, and it cannot be defined by the components at the basis of its phases, in which the realization of various shadow banking operations, by variegated shadow banking entities, connect subjects in deficit with subjects in surplus (and, in this way, promote new methods of financing the real economy by using alternative undertakings for investment.

At this stage of the analysis, it should be clear that the definition of the shadow banking system is conditioned by the measures introduced to mitigate the effects of the financial crisis (and, therefore, by the changes to regulation that effect the functioning and transparency of the capital markets). In particular, we must take into account the European regulatory option to place under supervision the off-exchange trading of certain instruments (OTC), according to specific rules that—in addition to pursuing the goals of increasing transparency, protecting investors, and strengthening confidence—attribute to the authorities more intervention powers (and, therefore, lead the operations in question within the traditional surveillance mechanisms).

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