Securing Effective Regulation of the Shadow Banking System

Abstract

This article examines the recent regulatory reforms of the shadow banking system and why they were necessary. Using securitisation, securities financing and money market funds as illustrations, the article concludes that the diverse and extensive new regulations on shadow banking are likely to succeed because they build upon some core principles that have been trialled elsewhere in the contemporary and wider financial regulation. While those core principles extend the boundaries of conventional banking regulation, they aim to accomplish the same objective of financial stability. Viewed in that light, the article concludes, the new regulations on shadow banking constitute an evolutionary positive step that fortifies the core principles of modern financial regulation.