A clear definition of the phenomenon under observation, shadow banking, is not appropriate at the beginning of an analysis like the following. After all, we are dealing not with the essence of the banking business, but with the conditions and the effects of capital circulation. As the following pages of this book will show, the external course of the shadow banking system is multidimensional, and hence we will be able to understand its features and risks by analyzing the concrete evidence of experience.


Real Economy Legal Order Monetary Authority Regulatory Arbitrage Collateralized Debt Obligation 
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  1. 1.
    see FSB (2014) Global Shadow Banking Monitoring Report 2014, 30 October, pp. 1 and 38 where there are the results of IMF’s Global Financial Stability Review, October 2014, statistical appendix.Google Scholar
  2. It is helpful to refer to Williamson (1985), The Economic Institution of Capitalism (New York), p. 385 ff.Google Scholar
  3. From a regulatory perspective, see Capriglione (2010), Misure anticrisi tra regole di mercato e sviluppo sostenibile (Torino) p. 43 ff.Google Scholar
  4. 2.
    See Pilkington (2008) “Conceptualizing the Shadow Financial System in a Stock-Flow Consistent Framework,” Global Business & Economics Anthology, Vol. 2, p. 268 ff.Google Scholar
  5. 3.
    See Schneider-Williams (2013) “The Shadow Economy”, Institute of Economic Affairs Monograph, Hobart Paper, no. 172, who suggest that the main drivers of the shadow economy should be: tax and social security burdens, tax morale, the quality of state institutions and labour market regulation.Google Scholar
  6. For the pre-crisis approach to this topic, see Davidoff and Solomon (2007), “Black Market Capital”, Wayne State University Law School Research Paper, no. 07-26, where the author uses the abovementioned terms to indicate certain supply and demand, which “drives public investors to substitute less-suitable, publicly available investments which attempt to mimic the characteristics of hedge funds or private equity.”Google Scholar
  7. See also Fardmanesh-Douglas (2003) “Foreign Exchange Controls, Fiscal and Monetary Policy, and the Black Market Premium,” Yale University Economic Growth Center Discussion Paper, no. 876, for the standards of examination of the relationship between the official and parallel exchange rates used before the crisis (in the paper, the authors take into account the data of three Caribbean countries, Guyana, Jamaica, and Trinidad, during the 1985–1993 period using co-integration).Google Scholar
  8. 4.
    See Ostrom (2005) Understanding Institutional Diversity (Princeton), p. 135 ff.Google Scholar
  9. 5.
    See Tyson and Shabani (2013) “Sizing the European Shadow Banking System: A New Methodology,” CITYPERC Working Paper Series, no. 2013/01.Google Scholar
  10. 6.
    see Pozsar, Adrian, Ashcraft, and Boesky (2012) Federal Reserve Bank of New York Staff Reports — Shadow Banking, no. 458, July 2010 (revised February 2012), p. 5Google Scholar
  11. 7.
    See Sakurai and Uchida (2013) “Rehypothecation Dilemma: Impact of Collateral Rehypothecation on Derivative Prices Under Bilateral Counterparty Credit Risk”, 25th Australasian Finance and Banking Conference 2012, for the background of our analysis, given the practice where a derivatives dealer reuses collateral posted from its end user in OTC derivatives markets. From this and other speculative practices arises the need for regulation that will be investigated in Chapter 6.Google Scholar
  12. See also Stiglitz (2012) The Price of Inequality (New York), p. xi, on the specific problems raised by the failure of markets in the recent crisis, and p. 52 for the implications on inequalities in the financial markets.Google Scholar
  13. 8.
    See Skeel (2010) “The New Financial Deal: Understanding the Dodd-Frank Act and its (Unintended) Consequences,” U of Penn, Inst for Law & Econ Research Paper, no. 10–21, where it is clearly explained why the US regulation has the goals of limiting the risk of the shadow banking system by more carefully regulating derivatives.Google Scholar
  14. 9.
    See Luck and Schempp (2014) “Banks, Shadow Banking, and Fragility”, ECB Working Paper, no. 1726, where the authors highlights that the relative size of the shadow banking sector determines the stability of the financial system.Google Scholar
  15. See also Adrian and Liang (2014) “Monetary Policy, Financial Conditions, and Financial Stability,” FRB of New York Staff Report, no. 690, where the authors review monetary policy transmission channels, focusing on vulnerabilities that affect monetary policy’s risk-return trade-off, including 1) pricing of risk, 2) leverage, 3) maturity and liquidity mismatch, and 4) interconnectedness and complexity.Google Scholar
  16. In particular, see Sharma (2014) “Shadow Banking, Chinese Style,” Economic Affairs, Vol. 34, Issue 3, p. 340 ff. where he describes the phenomenon as “poorly regulated, engaging in opaque forms of intermediation, deeply interconnected with the official banking system, and operating with implicit government guarantees, they pose a major source of systemic risk.” On this basis, the author tries to explain the rapid proliferation of shadow banks in China.CrossRefGoogle Scholar
  17. 10.
    See Kim (2014) “Money is Rights in Rem: A Note on the Nature of Money,” Journal of Economic Issues, Vol. 48, Issue 4, pp. 1005–1019, where the author aims to demonstrate that contemporary banking, including commercial and shadow banking, creates money by mirroring credit in the image of rights in rem.Google Scholar
  18. 11.
    See Rixen (2013) “Why Reregulation after the Crisis is Feeble: Shadow Banking, Offshore Financial Centers and Jurisdictional Competition,” Regulation & Governance, Vol. 7, Issue 4, p. 435 ff.CrossRefGoogle Scholar
  19. 12.
    This is a fundamental criterion for contemporary legal orders, defined as “the benefits that individuals obtain from acts minus the harm done and the costs of enforcement of law,” see Shavell (2004) Foundations of Economic Analysis of Law, (Cambridge), p. 575.Google Scholar
  20. 13.
    see FSB (2013) Global Shadow Banking Monitoring Report 2013, November 14, cit., p. 1.Google Scholar

Copyright information

© Valerio Lemma 2016

Authors and Affiliations

  • Valerio Lemma
    • 1
  1. 1.Marconi University of RomeItaly

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