Shadow Banking : Scope, Origins and Theories

263 Pages·2017·12.94 MB·English

by  Nesvetailova

Shadow Banking
Shadow banking – a system of credit creation outside traditional banks – lies at
the very heart of the global economy. It accounts for over half of global bank-
ing assets, and represents a third of the global financial system. Although the
term ‘shadow banking’ only entered public discourse in 2007, the importance
and scope of this system is now widely recognised by the international policy-
makers. There is, however, much less consensus on the origins of the shadow
banking system, what role it plays in global political economy and the optimal
approach to regulating this complex segment of finance. This volume addresses
these questions.
Shadow Banking is the first study to bring together the insights from financial
regulators, practitioners and academics from across the social sciences. The first
part traces the evolution and ongoing confusion about the meaning of ‘shadow
banking’. The second section draws major lessons about shadow banking as
posed by the financial crisis of 2007–09, providing comparative analyses in the
US and Europe, and attempts to establish why shadow banking has emerged and
matured to the level of a de facto parallel financial system. Finally, the third part
goes beyond current regulatory concerns about shadow banking and explains why
it is ‘here to stay’.
This volume is of great importance to political economy, banking and interna-
tional political economy.
Anastasia Nesvetailova is Director of City Political Economy Research Centre,
City University of London, UK. Her main research and teaching interests lie in
the area of international political economy, finance and financial crises, regulation
and governance.
Routledge Critical Studies in Finance and Stability
Edited by Jan Toporowski, School of Oriental and
African Studies, University of London, UK
The 2007–8 Banking Crash has induced a major and wide-ranging discussion on
the subject of financial (in)stability and a need to revaluate theory and policy. The
response of policy-makers to the crisis has been to refocus fiscal and monetary
policy on financial stabilisation and reconstruction. However, this has been done
with only vague ideas of bank recapitalisation and ‘Keynesian’ reflation aroused
by the exigencies of the crisis, rather than the application of any systematic theory
or theories of financial instability.
Routledge Critical Studies in Finance and Stability covers a range of issues in
the area of finance including instability, systemic failure, financial macroeconom-
ics in the vein of Hyman P. Minsky, Ben Bernanke and Mark Gertler, central bank
operations, financial regulation, developing countries and financial crises, new
portfolio theory and New International Monetary and Financial Architecture.
For a full list of titles in this series, please visit www.routledge.com/series/
RCSFS
7 Financial Regulation in the European Union
Edited by Jan Kregel, Mario Tonveronachi and Rainer Kattel
8 Achieving Financial Stability and Growth in Africa
Edited by Stephany Griffith-Jones and Ricardo Gottschalk
9 Financial Development, Economic Crises and Emerging
Market Economies
Edited by Faruk Ülgen
10 Financialization and the Economy
Edited by Agata Gemzik-Salwach and Krzysztof Opolski
11 Shadow Banking
Scope, Origins and Theories
Edited by Anastasia Nesvetailova
Shadow Banking
Scope, Origins and Theories
Edited by Anastasia Nesvetailova
First published 2018
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 2018 selection and editorial matter, Anastasia Nesvetailova; individual
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ISBN: 978-1-315-51161-0 (ebk)
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Contents
List of figures vii
List of tables viii
Notes on contributors ix
List of abbreviations xi
Introduction: shadow banking: the political
economy of financial innovation 1
ANASTASIA NESVETAILOVA
PART I
Scoping the shadow banking system 17
1 Shadow banking: a view from the USA 19
ZOLTAN POZSAR
2 The transformation of banking 25
ROBERT GUTTMANN
3 How shadow banking became non-bank finance:
the conjectural power of economic ideas 40
EWALD ENGELEN
4 Shadow banking, German banking and
the question of political order 54
OLIVER KESSLER AND BENJAMIN WILHELM
5 Shadow banking in China: instruments, issues, trends 72
JIANJUN LI AND SARA HSU
6 The two shadow banking systems in Russia 87
NATALIA KAUROVA
vi Contents
PART II
Crisis and beyond: shadow banking and its origins 105
7 The shadow banking system during the financial crisis
of 2007–08: a comparison of the US and the EU 107
ANTOINE BOUVERET
8 European money market funds: a study of the market
micro-processes 122
VIKTORIA BAKLANOVA AND JOSEPH TANEGA
9 Shadow connections: on hierarchies of collateral
in shadow banking 143
DANIELA GABOR
10 Investment funds, shadow banking and systemic risk 163
ELIAS BENGTSSON
PART III
Banking on the future:
the structural demand for financial innovation 179
11 Why overcapitalisation drives banks into the shadows 181
JAN TOPOROWSKI
12 The future for the top 0.1 per cent:
the real role of hedge funds in the subprime crisis 190
PHOTIS LYSANDROU
13 The economy of deferral and displacement:
finance, shadow banking and fiscal arbitrage 202
RONEN PALAN AND DUNCAN WIGAN
14 Shadow banking and the challenges for central banks 217
THORVALD GRUNG MOE
Conclusion: shadow banking: into the limelight 238
ANASTASIA NESVETAILOVA
Index 244
Figures
5.1 Ratio of shadow banking instruments to banking assets in China 84
6.1 Capital flight from Russia, billion $ 89
6.2 Russia’s foreign debt, billion $ 90
6.3 Registered and liquidated MFIs in Russia, Pcs 93
6.4 Yearly growth of insurance contributions, % 98
7.1 Low systemic risk concerns linked to shadow banking
before 2007–2008 110
7.2 Simplified securitization-based shadow credit intermediation 112
7.3 US shadow banking system 113
7.4 European shadow banking system 113
7.5 Ratings of RMBS in the US 114
7.6 US RMBS ratings 115
7.7 European RMBS ratings 115
7.8 Eligibility of ABS in the euro area 116
7.9 ABS issuance in Europe 117
8.1 Money market fund structure 123
10.1 Money market and short-term credit instruments issued
by credit institutions and held by MMFs in the Euro area
2006–2012 (EUR bn) 165
10.2 Holdings of US structured credit by sector (end 2007) 166
10.3 Net credit protection bought by sector 2008–2012
(notional amounts, USD bn) 167
12.1 Growth of CDOs (US$ trillions) 194
Tables
5.1 China’s shadow banking instruments data 83
7.1 Evolution of the US and EU shadow banking systems
(2012Q4 – 2008Q1) 114
7.2 Fed facilities (USD bn) 117
7.3 Data used to map the shadow banking system 118
8.1 Risk-limiting provisions for European money market funds 134
9.1 Haircuts on term repos 152
Contributors
Viktoria Baklanova is senior adviser at US Treasury.
Elias Bengtsson is a Senior Lecturer at Halmstad University, Sweden. He previ-
ously held positions at the European Central Bank and the Swedish central bank.
Antoine Bouveret is an economist at the International Monetary Fund.
Ewald Engelen is Professor of Financial Geography at the University of
Amsterdam, Netherlands.
Daniela Gabor is Professor of Economics at Bristol Business School, UK.
Thorvald Grung Moe is senior adviser at Norges Bank and a research associate
at Levy Economics Institute of Bard College, USA.
Robert Guttmann is Professor of Economics at Hofstra University and University
of Paris-Nord, France.
Sara Hsu is Associate Professor of Economics at the University of New Paltz,
USA.
Natalia Kaurova is Associate Professor at the Financial University under the
Government of the Russian Federation, Moscow, Russia.
Oliver Kessler is Professor of Political Science at the University of Erfurt,
Germany.
Jianjun Li is Professor of Finance at Central University of Finance and Economics
in Beijing, China.
Photis Lysandrou is Professor Emeritus at London Metropolitan University and
a Research Fellow at City Political Economy Research Centre (CITYPERC),
City, University of London, UK.
Anastasia Nesvetailova is Professor of IPE at City, University of London, UK.
Ronen Palan is Professor of International Political Economy, City, University of
London, UK.
Zoltan Pozsar is senior macro strategist at Credit Suisse.