Shadow Banking - Policy Frameworks and Investor Perspectives on Markets-Based Finance

22:21 15 Comments

Shadow banking refers to the process of credit intermediation that is conducted outside the regular banking system. It represents a diverse ecosystem spanning wholesale markets–based credit intermediation and alternative lending channels and includes a broad range of entities, activities, and interconnections among financial institutions.

At its core, the shadow bank credit intermediation process typically involves short-term funding or borrowing to facilitate longer-term lending or investment in less liquid assets, resulting in maturity transformation, liquidity transformation, credit risk transfer, or leverage.

In this report, we examine the scope of the shadow banking system, evaluate the policy frameworks applicable to different shadow banking entities and activities, and survey the perspectives of investment professionals on key shadow banking issues. The purpose is to inform the development of shadow banking policy initiatives from the perspective of investors.

Examples of shadow banking entities in economies with advanced financial sectors, such as the United States and Europe, include money market funds, which have deposit-like funding characteristics and invest in money market instruments with different maturities; hedge funds, which may use leverage to finance their trading positions in securities or financial instruments with differing liquidity profiles; and securitisation vehicles, such as asset-backed securities, which transfer credit risk among different investors. Shadow banking also includes securities financing transactions and the reuse of collateral for further financing.

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LIBOR Lessons, Corp Market Responsibility: Cosgrove Prize Winners Foster Ethics in Finance

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Though both young investment professionals were based largely in London in 2012, chances are Rafael ARP Gomes of Portugal, and Prabhay Joshi of the UK didn’t know one another. The same would not be true come 14 November 2013, the day they found themselves side by side at a ceremony in Geneva being honored with the top prize in an international competition aimed at making the finance world a better place.

A year earlier, they, along with some 400 others worldwide, had entered the Ethics in Finance-Robin Cosgrove Prize competition, for which CFA Institute is a sponsor. Participants submit their innovative thoughts to promote trust and ethical behavior in the financial sector in the form of a 5,000-word paper. After clearing a number of evaluations, Gomes’ and Joshi’s papers were declared the global edition winners of the prize, which carries with it $10,000 for each recipient.

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How Would You Change Finance for the Better?

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As part of Putting Investors First Month May 2015 we asked CFA Institute constituents via social media: How would you change finance for the better? By the way, if you would like to respond to this thread please do by using the #InvestorsFirst hashtag on social media. Also, be sure to visit the Putting Investors First website. Here then is a sampling of some of the more interesting responses that we received.

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