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Non-Standard Operations in the Shadow Banking System

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

Abstract

This chapter will consider the problems related to the issuing of ABCPs, ABSs, and CDOs. Before that, I clarify that the use of securities lending and borrowing or other agreements is connected with the process velocity (in circulating the money), then must be monitored by the monetary authorities.

Keywords

Credit Default Swap Monetary Authority Sovereign Debt Sovereign State Credit Institution 
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.
    See Tucker (2012) Shadow Banking — Thoughts for a Possible Policy Agenda, cit., p. 6 ff., where it is highlighted that “these markets are vital to efficient capital markets.”Google Scholar
  2. 2.
    See Beber and Pagano (2011) “Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis,” Journal of Finance, where the authors describe the choice of the global regulators on banning short-selling practices after the beginning of the crisis. This choice causes important variations on short-selling activities that generate various effects on liquidity, price discovery, and stock prices.Google Scholar
  3. 3.
    See Tucker (2012) Shadow Banking — Thoughts for a Possible Policy Agenda, cit., p. 6.Google Scholar
  4. 4.
    See ISLA, Global Master Securities Lending Agreement, January 2010, p. 3.Google Scholar
  5. 5.
    See Zhang (2014) “Collateral Risk, Repo Rollover and Shadow Banking,” LSE Working Paper, SSRN no. 2496915 for a dynamic model of the shadow banking system that intermediates funds through the interbank repo market to understand its failing mechanism during the recent financial crisis.Google Scholar
  6. 7.
    On this point see also Ali, Ramsay, and Saunders (2013) “The Legal Structure and Regulation of Securities Lending,” CIFR Paper, no. 022/2014, where the authors outline the regulation of securities lending and short selling, including restrictions on short selling and the applicable disclosure requirements.Google Scholar
  7. 10.
    See Tucker (2012) Shadow Banking — Thoughts for a Possible Policy Agenda, cit., p. 6.Google Scholar
  8. 11.
    See Tucker (2012) Shadow Banking — Thoughts for a Possible Policy Agenda, cit., p. 6, where it is added that “it is also worth mentioning that some asset managers have no — zero — appetite to hold the underlying paper outright in the event of their counterparty defaulting, either because the assets are not covered by investment mandates or the fund managers do not know how to manage them, etc.”Google Scholar
  9. 12.
    See Tobias and Shin (2009) Money, Liquidity and Monetary Policy, Federal Reserve Bank of New York Staff Report no. 360, passim.Google Scholar
  10. 13.
    See Tobias and Shin (2009) Money, Liquidity and Monetary Policy, cit., Abstract.Google Scholar
  11. 14.
    See Tobias and Shin (2009) Money, Liquidity and Monetary Policy, cit., Abstract.Google Scholar
  12. 15.
    See Constâncio (2012) Introductory Remarks to the ECB Workshop — Repo Market and Securities Lending: Towards an EU Database, available at http://www.ecb.europa.eu.Google Scholar
  13. 16.
    See Claessens, Pozsar, Ratnovski, and Singh (2012) Shadow Banking: Economics and Policy, cit., p. 22.Google Scholar
  14. 17.
    See Tucker (2012) Shadow Banking — Thoughts for a Possible Policy Agenda, cit., p. 7, who recalls the “Securities Lending and Repo: Market Overview and Financial Stability Issues,” and interim report of an FSB group chaired by David Rule.Google Scholar
  15. 18.
    See Claessens, Pozsar, Ratnovski, and Singh (2012) Shadow Banking: Economics and Policy, cit., p. 30, where it is summarized the empirical evidence that “around 50 to 70 percent of repo operations in the United States are cleared using TPR, with recent volumes approaching $1.8 trillion, much below the $3 trillion in 2008. The TPR market is a major source of wholesale funding for banks and dealer banks. The U.S. market is serviced by two clearing banks, Bank of New York and JP Morgan, both determined to be systemic by the Financial Stability Board. Pledged collateral is held with custodians and cannot be repledged. The TPR arrangement has several advantages: outsourcing collateral management to the TPR clearer, saving back- office costs for counterparties, and creating economies of scale, as securities are simply moved from one account to another within the clearer’s books. It also allows market participants to exchange collateral baskets, outsource risk management (haircut calculation, margin calls, and substitution), pricing, and other ancillary tasks.”Google Scholar
  16. 19.
    See Tucker (2012) Shadow Banking — Thoughts for a Possible Policy Agenda, cit., p. 7, because he said that “this has become apparent from the Lehman and MFG bankruptcies.”Google Scholar
  17. 21.
    see Pozsar, Adrian, Ashcraft, and Boesky (2012) Federal Reserve Bank of New York Staff Reports — Shadow Banking, cit., p. 5.Google Scholar
  18. 22.
    See Draghi (1997) “Commento sub art. 46 d. lgs. 415 del 1996,” in Capriglione (ed.), La disciplina degli intermediari e dei mercati finanziari, (Padova), p. 385.Google Scholar
  19. 24.
    On this point 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, cit., where the authors outline the need for an increased analysis (by the supervisors) of shadow banking activities (instead of entity-based strategies, imposing bank-like regulation). This suggest the possibilities of a more effective identification of the risks’ sources, a better uniformity in cross-border application of reforms, and to a greater flexibility in addressing financial innovation.Google Scholar
  20. 26.
    See Coval, Jurek, and Stafford (2008) “The Economics of Structured Finance,” Harvard Business School Finance Working Paper, no. 09-060, cit., where the authors highlight the essence of structured finance activities in the pooling of economic assets (such as loans, bonds, mortgages) and succeeding issuance of a tranche (prioritized capital structure of claims), against these collateral pools. The authors show, as a result of this prioritization scheme, that many of the tranches are far safer than the average asset in the underlying pool.Google Scholar
  21. 27.
    See Lener and Lucantoni (2012) “Regole di condotta nella negoziazione degli strumenti finanziari complessi: disclosure in merito agli elementi strutturali o sterilizzazione, sul piano funzionale, del rischio come elemento tipologico e/o normativo?” Banca borsa e titoli di credito, I, p. 369 ff.Google Scholar
  22. 28.
    See Tucci (2014) “‘Interest Rate Swaps’: ‘causa tipica’ e ‘causa concreta’,” Banca borsa e titoli di credito, II, p. 291 ff.Google Scholar
  23. Tucci (2013) “La negoziazione degli strumenti finanziari derivati e il problema della causa del contratto,” Banca borsa e titoli di credito, I, p. 68 ff.,on the problem of the Italian concept of contractual “causa,” useful also for the analysis of the “consideration” of any swap.Google Scholar
  24. 29.
    See Tian (2011) Shadow Banking System, Derivatives and Liquidity Risks, MFA Annual Meeting, Chicago.Google Scholar
  25. 32.
    See Classens, Pozsar, Ratnovsky, and Singh (2012) Shadow Banking: Economic and Policies, cit., Appendix 1. Over-the-Counter Derivatives: Central Counterparties and Under-Collateralization, p. 29Google Scholar
  26. 33.
    See ISDA (2014) ISDA Comments — EU proposal on Structural Reform of the EU Banking Sector, July, 2, p. 5.Google Scholar
  27. 34.
    See Piga (2001) “Do Governments use Financial Derivatives Appropriately? Evidence from Sovereign Borrowers in Developed Economies,” International Finance, p. 189 ff.Google Scholar
  28. 36.
    For an analysis of the European building blocks, see Capriglione (2013) L’Unione bancaria europea, cit., p. 111.Google Scholar
  29. 37.
    See Lemma and Haider (2012) “The Difficult Journey Towards European Political Union: Germany’s Strategic Role,” Law and Economics Yearly Review, p. 390 ff., where there is the following conclusion: “it remains the necessity to define new development trends of the European legal system, which currently is hard-fought between the methodological austerity of the public finance (as framed since the Maastricht Treaty) and the auspices of a subsidiarian solidarism of the EU institutions (promoted by Mediterranean instances).”Google Scholar
  30. 38.
    See Montedoro (2010) Mercato e potere amministrativo, (Napoli) p. 13 and p. 319.Google Scholar
  31. 41.
    See Awrey (2010) The Dynamics of OTC Derivatives Regulation: Bridging the Public-Private Divide, in Oxford Legal Studies Research Paper, where the author “explores both the private and social costs and benefits of OTC derivatives and the respective strengths and weaknesses of public and private systems of ordering in pursuit of the optimal mode of regulating OTC derivatives markets.”Google Scholar
  32. 44.
    It is not rare to see this question in the press, see Frisone (2013) “Le insidie degli swap plain vanilla,” Il Sole 24 Ore, November 9, p. 24.Google Scholar
  33. 46.
    See, on this point, Lemma (2006) “L’applicazione del Fair Value alle banche: problematiche giuridiche e soluzioni,” Banca borsa e titoli di credito, I, p. 723 ff.Google Scholar
  34. 47.
    See Monti (2000) Manuale di finanza per l’impresa, (Torino) p. 146, for an analysis of the forms in which these operations were designed in the beginning of the third millennium.Google Scholar
  35. 48.
    For a pre-crisis perspective, see Barth, Caprio, and Levine (2001) “The Regulation and Supervision of Banks Around the World: A New Database,” World Bank Policy Research Working Paper, no. 2588.Google Scholar

Copyright information

© Valerio Lemma 2016

Authors and Affiliations

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

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