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Shadow Business of Banks, Insurance Companies, and Pension Funds

  • Valerio Lemma
Part of the Palgrave Macmillan Studies in Banking and Financial Institutions book series (SBFI)

Abstract

In this chapter, the focus is on the role played by the commercial and merchant banks in the shadows, and I identify the need for accurate internal controls designed to avoid excessive risk taking and moral hazards.

Keywords

Pension Fund Investment Policy Credit Institution Internal Audit Function Internal Control System 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Notes

  1. 1.
    On the competition in the financial market and the need to clarify the relationship between the first and the need for a stable equilibrium (of the second), see Rabitti (2014) “La concorrenza nel settore finanziario e i provvedimenti del Governo Monti,” Assicurazioni, II, p. 441 ff.Google Scholar
  2. 2.
    see Pozsar, Adrian, Ashcraft, and Boesky (2012) Federal Reserve Bank of New York Staff Reports — Shadow Banking, cit., p. 11.Google Scholar
  3. 3.
    See Greene and Broomfield (2013) “Promoting Risk Mitigation, Not Migration: A Comparative Analysis of Shadow Banking Reforms by the FSB, USA and EU,” Capital Markets Law Journal, vol. 8, no. 1, where the authors focus on the importance of tailored solutions (made to address the specific activities which create risk), rather than apply standard rules to shadow banking entities, ignoring their own characteristics or risk profiles.Google Scholar
  4. 4.
    See Adrian and Ashcraft (2012) “Shadow Banking Regulation,” FRB of New York Staff Report no. 559, cit., where the authors review the implications of certain shadow funding sources, including asset-backed commercial paper, triparty repurchase agreements, money market mutual funds, and securitization.Google Scholar
  5. 5.
    See Pozsar, Adrian, Ashcraft, and Boesky (2012) Federal Reserve Bank of New York Staff Reports — Shadow Banking, cit., p. 13 ff.Google Scholar
  6. 6.
    See Desiderio (2005) “L’attività bancaria,” in Capriglione (ed.) L’ordinamento finanziario italiano (Padova), p. 248 ff.Google Scholar
  7. 10.
    See on this topic Anelli (1998) “La responsabilità risareitoria delle banche per illeciti commessi nell’erogazione del credito,” Diritto della banca e del mercato finanziario, f. 2, p. 137 ff.Google Scholar
  8. 11.
    See Duffie and Zhu (2011) “Does a Central Clearing Counterparty Reduce Counterparty Risk?”, Rock Center for Corporate Governance at Stanford University Working Paper, no. 46, where the authors demonstrate how the participation of a central clearing may lower counterparty risk for a particular class of derivatives.Google Scholar
  9. 12.
    See Siclari (2013) “Tendenze regolatorie in materia di compliance bancaria,” Rivista Trimestrale di Diritto dell’Economia, I, p. 156 ff.,Google Scholar
  10. See also Lemme (2014) “Le disposizioni di vigilanza sulla governance delle banche: riflessioni a tre anni dall’intervento,” Banca borsa e titoli di credito, 2011, f. 6,p. 705 ff.Google Scholar
  11. 13.
    See Enriques and Zetzsche (2014 “Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive,” Oxford Legal Studies Research Paper, no. 67/2014, where the authors focus on the provisions aimed to reshape bank boards’ composition, functioning, and members’ liabilities. They argue that these measures are not appropriate to improve the bank’s governance effectiveness and to prevent excessive risk taking.Google Scholar
  12. See also Bebchuk and Spamann (2010) “Regulating Bankers’ Pay,” Georgetown Law Journal, vol. 98, Issue 2, pp. 247–287 and Harvard Law and Economics Discussion Paper, no. 641, for a useful analysis of the incentive connected to banks’ executive pay, which—as known—has produced excessive risk taking.Google Scholar
  13. 14.
    See Lemma (2011) “La riforma degli intermediari finanziari non bancari nella prospettiva di Basilea III,” Rivista elettronica di diritto, economia e management, p. 184 ff., where I compare the Italian reform of financial intermediaries (enacted by legislative decree no. 141/2010) with the comprehensive set of measures developed in 2010 by the Basel Committee (i.e. Basel III).Google Scholar
  14. 16.
    See Vella (2007) “Le Autorità di vigilanza: non è solo questione di architetture,” Dir. banca merc. fin., 2, p. 196.Google Scholar
  15. 17.
    This is linked to the document EBA, Guidelines on Internal Governance, September 2011, Title III, Section 23 (1, 3) where it is stated that “an institution must have in place a well-documented new product approval policy (NPAP), approved by the management body, which addresses the development of new markets, products and services and significant changes to existing ones.”Google Scholar
  16. 18.
    To this purpose are the regulations on the CEO-1 risks, which appear to be able to condition the management, see Banca d’Italia, Nuove disposizioni di vigilanza prudenziale per le banche, Circular no. 263 of December 27, 2006 — 15˚ update of July 2, 2013, pp. 6–7.Google Scholar
  17. 19.
    See Billio, Lo, Sherman, and Pelizzon (2011) “Econometric Measures of Connectedness and Systemic Risk in the Finance and Insurance Sectors,” University Ca’ Foscari of Venice, Dept. of Economics Research Paper Series, no. 21 and MIT Sloan Research Paper no. 4774–10, where the authors propose an econometric model of connectedness, applied to the monthly returns of hedge funds, banks, brokers/dealers, and insurance companies. They find out that those sectors have become highly interrelated over the past decade, increasing the total level of systemic risk. However, the study shows a relevant asymmetry in the degree of interconnectedness among the financial system, with banks playing a much more important role in transmitting shocks than other financial institutions.Google Scholar
  18. 20.
    See Corrias (2013) “Causa del contratto di assicurazione: tipo assicurativo o tipi assicurativi?”, Rivista di diritto civile, f. 1, p. 41 ff., on the role of the insurance contracts in the financial marketGoogle Scholar
  19. 24.
    See Pozsar, Adrian, Ashcraft, and Boesky (2012) Federal Reserve Bank of New York Staff Reports — Shadow Banking, cit., p. 22.Google Scholar
  20. 28.
    See Gallin (2013) Shadow Banking and the Funding of the Nonfinancial Sector, available at http://www.nber.org, p. 7 and p. 8.Google Scholar
  21. See also Boersch (2010) “Doing Good by Investing Well—Pension Funds and Socially Responsible Investment: Results of an Expert Survey,” Allianz Global Investors International Pension Paper no. 1/2010, where the author conducts research on the future of socially responsible investment in pension fund portfolios. Hence, the explaination that pension funds are one of the main drivers of socially responsible investments just because of their long-term horizon and asset size.Google Scholar
  22. 29.
    See Gallin (2013) Shadow Banking and the Funding of the Nonfinancial Sector, available at http://www.nber.org, p. 10.Google Scholar

Copyright information

© Valerio Lemma 2016

Authors and Affiliations

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

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