By analyzing the growth and regulation of shadow banking activities by large banks in Western Europe and the US, this book illuminates how the evolution of finance, driven by structural pressures and financial innovations, is crucially mediated through state-finance interactions on the meaning of rules and the need to comply.

The 'shadow banking system' refers to a system of credit-provision occurring outside of the official regulatory perimeter of commercial banks. Facilitated by securitization vehicles, mutual funds, hedge funds, investment banks and mortgage companies, the function and regulation of these shadow banking institutions has come under increasing scrutiny after the subprime crisis of 2007–8. Matthias Thiemann examines how regulators came to tolerate the emergence of links between the banking and shadow banking systems. Through a comparative analysis of the US, France, the Netherlands and Germany, he argues that fractured domestic and global governance systems determining the regulatory approach to these links ultimately aggravated the recent financial crisis. Since 2008, shadow banking has even expanded and the incentives for banks to bend the rules have only increased with increasing regulation. Thiemann's empirical work suggests how state-finance relations could be restructured to keep the banking system under state control and avoid future financial collapses.

This global handbook provides an up-to-date and comprehensive overview of shadow banking, or market-based finance as it has been recently coined. Engaging in financial intermediary services outside of normal regulatory parameters, the shadow banking sector was arguably a critical factor in causing the 2007-2009 financial crisis. This volume focuses specifically on shadow banking activities, risk, policy and regulatory issues. It evaluates the nexus between policy design and regulatory output around the world, paying attention to the concept of risk in all its dimensions—the legal, financial, market, economic and monetary perspectives. Particular attention is given to spillover risk, contagion risk and systemic risk and their positioning and relevance in shadow banking activities. Newly introduced and incoming policies are evaluated in detail, as well as how risk is managed, observed and assessed, and how new regulation can potentially create new sources of risk. Volume I concludes with analysis of what will and still needs to happen in the event of another crisis. Proposing innovative suggestions for improvement, including a novel Pigovian tax to tame financial and systemic risks, this handbook is a must-read for professionals and policy-makers within the banking sector, as well as those researching economics and finance.

An authoritative guide to the rise of Chinese shadow banking and its systemic implications Shadow Banking in China examines this rapidly growing sector in the Chinese economy, and what it means for your investments. Written by two world-class experts in Chinese banking, including the Chief Advisor to the China Banking Regulatory Commission and former Chairman of the Securities and Futures Commission in Hong Kong, this book is unique in providing true, first-hand perspectives from authorities within the world's largest economy. There is little widely-available information on China's shadow banking developments, and much of it is rife with disparate data, inaccuracies and overblown risks due to definitional and measurement differences. This book clears the confusion by supplying accurate information, on-the-ground context and invaluable national balance sheet analysis you won't find anywhere else. Shadow banking has grown to be a key source of credit in China, and a major component of the economy. This book serves as a primer for analysts and investors seeking real, useful information about the sector to better inform investment decisions. Discover what's driving the growth of shadow banking in China Learn the truth about both real and inflated risks Dig into popular rhetoric and clarify common misconceptions Access valuable data previously not published in English Despite shadow banking's critical influence on the Chinese economy, there have been very few official studies and even fewer books written on the subject. Understanding China's present-day economy and forecasting its future requires an in-depth understanding of shadow banking and its inter-relationship with the banking system and other sectors. Shadow Banking in China provides authoritative reference that will prove valuable to anyone with financial interests in China.

We present a model in which shadow banking arises endogenously and undermines market discipline on traditional banks. Depositors' ability to re-optimize in response to crises imposes market discipline on traditional banks: these banks optimally commit to a safe portfolio strategy to prevent early withdrawals. With costly commitment, shadow banking emerges as an alternative banking strategy that combines high risk-taking with early liquidation in times of crisis. We bring the model to bear on the 2008 financial crisis in the United States, during which shadow banks experienced a sudden dry-up of funding and liquidated their assets. We derive an equilibrium in which the shadow banking sector expands to a size where its liquidation causes a fire-sale and exposes traditional banks to liquidity risk. Higher deposit rates in compensation for liquidity risk also weaken threats of early withdrawal and traditional banks pursue risky portfolios that may leave them in default. Policy interventions aimed at making traditional banks safer such as liquidity support, bank regulation and deposit insurance fuel further expansion of shadow banking but have a net positive impact on financial stability. Financial stability can also be achieved with a tax on shadow bank profits.

This timely book investigates the dynamic causes, key forms, potential risks and changing regulation of shadow banking in China. Topics discussed include P2P lending, wealth management products, local government debts, and the underground lending market. Taking policy considerations into account, the author provides a comprehensive analysis of the regulatory instruments tackling the systemic risks in relation to China's shadow banking sector. Central bank's role, interest rate formation mechanism, exchange rate reform and further deepening reform of the regulatory regime and financial markets are also thoroughly discussed in the context of China's continuing financial reform.

This note outlines the basic economics of the shadow banking system, highlights (systemic) risks related to it, and suggests implications for measurement and regulatory approaches.