The fallout from the 2008 financial crisis spared no-one – investors
were crushed, financial institutions collapsed, models discredited and
market practice thrown into disarray. The subsequent Basel III,
Dodd-Frank and its European equivalent regulations have changed the face
of financial markets, from derivatives trading standards to bank
However the shadow banking sector has so far escaped censure. Given
that the freezing of this unregulated sector and its resultant spillover
into the regulator financial system was a key element in the crash, it
is perhaps surprising that this sector has managed to escape unharmed
for so long.
According to one estimate from the Financial Stability Board (FSB),
the global shadow banking system was worth around €46 trillion in 2010.
This accounts for 25 to 30% of the total financial system and half the
size of bank assets.
But the tide is turning. Financial supervisors, preoccupied with the
mandate of preventing...