The following Financial Services guidance note provides comprehensive and up to date legal information covering:
The shadow banking system is a form of credit intermediation involving entities and activities outside the regular banking system. Non-bank credit intermediation is a necessary source of funding for economic activity but this sector has real capacity to affect financial stability. Securities financing transactions assist with price discovery, secondary market liquidity, market-making, investment and risk management strategies as well as leverage and maturity and liquidity transformation. Risks are created at an entity level and form part of a complex chain of transactions causing a number of contagion routes into the regular banking system.
As well as the potential for 'runs', the sector experiences procyclicality. This is demonstrated by accelerating credit supply and asset price increases when confidence is high, with plunging falls in supply and prices linked to sudden loss of confidence. In 2007-09, markets experienced the failure of asset-backed commercial paper (ABCP) markets, the breakdown of originate-to-distribute models using structured investment vehicles (SIVs) and conduits, runs on money market funds and sudden revision of terms for securities lending and repurchase (repo) agreements. The shadow banking system has not been subject to the same sort of prudential regulation and oversight safeguarding which has developed in the mainstream banking system.
This is why the international community has been working to extend the regulatory perimeter to cover
**excludes LexisPSL Practice Compliance, Practice Management and Risk and Compliance. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-in
Take a free trial
Take a free trial
0330 161 1234