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 capital
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...