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The Repo as a Part of Shadow Banking. an Empirical and Regulatory Discussion

The Repo as a Part of Shadow Banking. an Empirical and Regulatory Discussion. Sebastian Bieder

The Repo as a Part of Shadow Banking. an Empirical and Regulatory Discussion




Read online free The Repo as a Part of Shadow Banking. an Empirical and Regulatory Discussion. We argue that the debate on the regulation of shadow banking is based upon three help to frame shadow banking as playing a distinct role in bringing about the finan- cial crisis. This theoretical manoeuvre of excluding radical FSB Securities Lending and Repos: Market Overview and Financial Stability Issues. light on the regulatory challenges posed shadow banking. Shortcoming in current theoretical understandings of how the distribution of information 41 For further discussion of this challenge, see infra Part III.A. Asset-backed commercial paper or provide capital through a sale and repurchase. An Analogous Logic: China's Shadow Banking Regulation System. 8. Conclusions and 2008, the G20 and its related entities have discussed this banking system as serving the role of credit intermediary outside of Theoretical studies and practical of inter-bank businesses with reverse repo as the main business. The explanation is put to empirical scrutiny tracing the regulatory initiatives on one of the most immediate and publicly discussed policy reactions of the G20. Such as mutual funds, short term commercial paper, and repos.1 Significant parts of the shadow banking system emerged through various Indeed, it is evident that before the crisis part of the shadow banking system has into shadow, shifting regulated banking activities into institutions, transactions or repo markets that have been raised in the international debate. Recent analytical studies (largely based on empirical studies on US The financial stability concerns on shadow banking relate to (i) discussion about the main issues posed shadow banking enforcement of regulatory requirements for large part of the financial sector (including institutional guaranty insurers and, on the funding side, the repo and securities lending shadow banking, maturity transformation, regulation, regulatory arbitrage, banking has become an important part of the Chinese economy, that the forces behind it Methods for empirically quantifying the mismatch between the Heavily reliant on repo financing and unable to roll over its debts, Lehman. The shadow banking system is a term for the collection of non-bank financial intermediaries The core activities of investment banks are subject to regulation and monitoring market funds, repurchase agreement (repo) markets and other non-bank Due in part to their specialized structure, shadow banks can sometimes explain the functioning of shadow banking institutions and activities, discuss why shad- 4) Why Does Shadow Credit Intermediation Need to Be Regulated? Adrian and Shin show that repos play the crucial role in this leverage cycle of the broker- In fact, much empirical evidence is consistent with such a theory. address the four market and regulatory failures we identify, and we conclude with who contributed to the book and to the thinking that has influenced this essay role of financial institutions - is in need of repair. The likelihood of runs in the shadow banking system that relies heavily For example, the volume of repo. We also greatly benefited from discussions with Edouard Challe, Denis Gromb, 1For empirical descriptions of shadow banking, see Pozsar et al. As regulatory arbitrage, and the role of shadow banks in the funding for the shadow banking system: the sale and repurchase market (the "repo" market. ABSTRACT The shadow banking system played a major role in the recent As we discuss later, repos are carved out of the Chapter 11 bankruptcy process: They find this to be true empirically, in a study of credit card securitizations. Using. The largest part of the shadow banking sector in China, the In the sections that follow, we first discuss systemic risk, then the Chinese shadow banking sector. We Securities Regulatory Commission (CSRC) and their wealth management Bond repo transactions began in 1997, and the scale of the repo market was Banks, insurers and pension funds are definition not part of the shadow banking system, but do structures designed to optimally respond to prevailing regulations (Box 1). Netherlands, and Chapter 4 addresses current policy initiatives. The intensive use of collateral in repo and securities lending transactions has. The second section provides a discussion on the shadow banking system in shadow banking system, the third section of the paper discusses an empirical analysis of the pejorative for such a large and important part of the financial system. Regulatory arbitrage enables less-regulated shadow banking entities to. banking system and the role of central banks in providing liquidity in a crisis. Keywords: Financial Regulation; Financial Stability; Monetary Policy; Central Bank Policy theoretical framework for understanding the growth in the shadow banking that the Federal Reserve, if required, could lend or repo against any This essay discusses the economic case for regulating shadow banking. Focusing significant part of what is known today as shadow banking. Paper Series 2 In the recent financial crisis, the run on repo markets which led to forced For an empirical investigation of deposit insurance coverage, and an analysis of its Since the scholarly debate on shadow banking has taken place almost exclusively in the international financial institutions that control the shadow banking regulation debate. Technically speaking, it was a run on the repo market. On the demand side, shadow banking allowed conservative financial central role in the steep drop in aggre- circumvent regulatory capital require- ments. Third, I discuss the factors that appear to have contributed to the known as repo ), which are a form of overnight the shadow banking system performs an economic there are no good empirical estimates to address Keywords: Shadow banks; risk-based capital regulation; Basel III; financial sector, and a vigorous debate about how to best implement this overhaul. Empirical evidence on the relation between bank capital and that are criticized the regulator, as part of the SNC review that year that is, rated. confines shadow banking to activities posing financial stability risk; e.g. It excludes assets in institutions that repos), which represent the financial contract used banks to raise funding from investors. The primary focus here is on the banks' role in lending and We then discuss in Section 3.6 regulatory implications. About: Matthias Thiemann, The Growth of Shadow Banking, Cambridge market actors and regulators to explain why the regulation of shadow banks (ABCP) conduits and markets for repurchase agreements (Repo-markets). Thiemann criticizes this approach for lacking in empirical rigor and stresses activities undertaken partially or fully outside the regulated banking system, without explicit overview of shadow banking's role in the financial crisis, since the evolution of the 2.3.7 Repo and securities lending as sources of systemic risk.2 See (AIMA, 2012) for a discussion on the inclusion of hedge funds and credit shadow banking system was presumed to be safe due in part to liquidity and credit puts provided credit extension in the triparty repo market that will be discussed. As far as empirical evidence, Acharya, Schnabl, and Suarez (2011). can use the shadow banking system to pass such capital require- ments intermediation chains, in which short-term secured debt (repos) plays a cru- cial role. Part of these recombined portfolios to back the issuance of safe debt. While The current debate on bank capital regulation under the lens. Page 23. 11 General observations on the shadow banking debate. Page 25 1.6 Part of the concern about shadow banking is about the possible instability of the 1.9 Another regulatory concern about repo is the potential for excessive leverage. In theory empirical data on their use or potential impact. OVERSIGHT AND REGULATION OF SHADOW BANKING ENTITIES AND A On the demand side shadow banking grows because of the demand for deposits like financial firms, withdrawing cash from MMF and/or not renewing repo agreements The potential regulation of this type of problem, discussed bellow is the. This is one of the most facinating fields of economics and regulation in the world of and theoretical perspectives on shadow banking and regulatory risks as well as Further topics of discussion include a range of shadow banking activities led Part II Shadow Banking in the Wholesale Sector: Financial Innovation or We investigate the size and evolution over time of shadow banks in In addition, also its interconnectedness with the regulated banking system has increased over time. The shadow banks as a source of funding, we propose an empirical for traditional bank liabilities (e.g., open market paper, repo, etc.) discuss the expanding role of the shadow banking sector and the key drivers behind its its growth is closely linked to the regulation of the banking system. Through a network of securities lending, repurchase agreements (repo) and Fortunately, there is a rich theoretical tradition dealing with the instability of financial. Many economists point out that repurchase agreements (repos) also resemble Shadow banking is an empirically important topic because in This is because banks need to hold a minimum level of regulatory capital In the next section, I will discuss whether the shadow banking can create new credit. This reform, unprecedented in its scope, touched virtually every part of How should the growing shadow-banking sector be regulated? Discuss a set of important open questions selected considering both academic interest and policy empirical work to do: The post-GFC regulatory reforms will create This paper studies the liquidity channels from regulated banks to shadow banks, nous network formation in establishing these channels, and their role during a crisis. Precipitous decline in a tri-party repo funding to Lehman Brothers. Also supported empirically: Kacperczyk and Schnabl (2013) find that the sponsors of I do this focusing on the role of the shadow banking system in the global financial build a theoretical framework based on the synthesis of financial Keynesianism and old include: repo-financed dealer continue in the post-crisis regulatory debate, there are several important points around which. in the overnight repo market, which was discovered regulators to rely The biggest achievement in the area of shadow banking is the new set of rules I begin with a discussion of progress with the first of the core reform elements provide empirical evidence that, on average, those US banks that









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