Shining light into the shadows
In a speech at Cass Business School in March last year the Chairman of the Financial Services Authority, Lord Turner, warned that there was a looming threat to global financial stability, arguing that "shadow banking is not something parallel to and separate from the core banking system, but deeply intertwined with it ... We need to ensure that our regulatory response appropriately covers shadow banking as well as banks."
However, despite Lord Turner's thoughts being echoed by many experts the shadow banking sector, which includes money market funds, conduits, securitisation lending, repossessions and according to the Financial Stability Board is worth around $67 trillion (USD), is largely ignored by policy makers, particularly in Europe.
An event at City last week, organised by Dr Anastasia Nesvetailova and the CITYPERC research centre, aimed to redress this lack of understanding by bringing together some of the world's leading academics, regulators and central bankers including Zoltan Pozar from the US Treasury Department, at the UK's first major conference specifically dedicated to starting a coherent dialogue on the control of Shadow Banking.
Other speakers included; Antoine Bouveret from the European Securities and Markets Authority; Ben Cohen from the Bank for International Settlements; Gary Dymski from Leeds Business School; Brooke Masters, Chief Regulation Correspondent at the Financial Times; and Thorvald Grung Moe from Norges Bank.
Dr Nesvestailova said: "Recent estimations suggest that European shadow banking activity is now of similar size to US activity, having grown steadily while the US contracted. In recognition of the systemic importance of the European shadow banking, the European Commission is actively searching for regulatory answers to preserve financial stability and many of the speakers at this conference are involved in that dialogue.
"City is very well placed to host this kind of event thanks to the expertise within our International Politics and Economics Departments, colleagues at Cass Business School and the CITYPERC research Centre. We are also very grateful for the support of the COST action group of the EU."
The closing keynote speech was delivered by Perry Mehrling, Professor of Economics at Barnard College, Columbia University, who said: "Shadow banking is the characteristic institutional form of finance this age of financial globalisation. The intellectual challenge facing us is to reconceptualise the role of central banking for the brave new world of shadow banking. This conference is an important first step toward that longer goal."