A Comparative Legal Study on the Regulatory Scheme of Shadow Banking System

• Main Authors: Mei, Wen-Hsin, 梅文欣
• Other Authors: HSIEH, YI-HONG
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/18405861610126803559

碩士 === 東吳大學 === 法律學系 === 101 === The term “shadow banking system” started to be used widely at the onset of the financial crisis, which refers to bank-like financial activities that are conducted outside the traditional commercial banking system, many of which are unregulated or lightly regulated. Many of the activities performed within the shadow banking system take funds from savers and investors and ultimately provide them to borrowers. While the term is used widely in the news media and in policy discussions, there is as yet no clear commonly-agreed definition, which stems not only from its recent origins but also from how the banking sector is structured and regulated in each jurisdiction. Until a report published by the Financial Stability Board (FSB) in October 2011 that a comprehensive definition of shadow banking was articulated, which defines shadow banking as “a system of credit intermediation that involves entities and activities outside the regular banking system, and raises (1) systemic risk concerns, in particular by maturity/liquidity transformation, leverage and flawed credit risk transfer, and/or (2) regulatory arbitrage concerns”. Within this definition are investment banks, money market mutual funds, hedge funds, special purpose entities, and other vehicles that aggregate and hold financial assets. Shadow banking system have advantages, for example, the shadow banking system may provide market participants and corporations with an alternative source of funding and liquidity. It may also provide efficient credit in the economy as some non-bank entities may have specialised expertise that enables them to provide certain functions in the credit intermediation chain more cost-efficiently. However, as the financial crisis has shown, like banks, a leveraged and maturity-transforming shadow banking system can be vulnerable to “runs” and generate contagion risk, thereby amplifying systemic risk. According to the Financial Instability Hypothesis of Hyman P. Minsky, such activity, if unattended, can also heighten procyclicality by accelerating credit supply and asset price increases during surges in confidence, while making precipitate falls in asset prices and credit more likely by creating credit channels vulnerable to sudden losses of confidence. Prior to the financial crisis, the shadow banking system was subject to much lighter government oversight and regulation, regulation of shadow banking system has tended to focus on protecting investors rather than on the safety and soundness of the financial institutions. Since the lack of adequate regulatory oversight of the shadow banking system caused the financial crisis. The focus of financial regulatory reform now encompasses the shadow banking system. The regulatory reform efforts have aimed at strengthening oversight and regulation of shadow banking system. This article review the recommendations of the Financial Stability Board, and the regulation of Dodd-Frank Wall Street Reform and Consumer Protection Act, to analyze the regulations and find the best solution for Taiwan.