1. How to tackle shadow bankers?
Prof. dr. Dirk Schoenmaker
Dean, Duisenberg school of finance
FSA Congres, 28 April 2011

3. What is shadow banking?
Shadow banks are financial institutions that provide credit and do maturity transformation without access to central bank or deposit insurance
So, banks that are not “officially” banks
Examples: finance companies, structured investment vehicles, asset-backed paper vehicles, credit hedge funds, money market mutual funds, etc.

4. Law of communicating vessels

5. Why is it unknown? Cultural based explanation
Shadow banks are operating in the shadow
Hedge funds, etc are happy to keep low profile
We all focus on the well-known: banks and insurers

6. Where do people look?

7. Why is shadow banking a problem?

8. Credit is growing outside traditional banking system

9. What is the problem? Problem
Credit is driving consumption and asset prices
“Unobserved” credit growth was driving housing and equity bubble in the US
What do our problem-solvers do?
How do central bankers and supervisors look at the banks under their supervision?

10. Do they look at the trees?

11. Or at the forest?

12. Macro- vs. Micro- prudential regulation

13. We need a system perspective
Solution
Not more micro-rules (which will be circumvented)
But take a system-wide perspective
Look at credit growth at banks and at market based shadow banks
At Duisenberg school of finance
We take an integrated system approach in our Master in Finance Programmes
We are active in search for new macro-prudential tools -> on top of our research and teaching agenda

14. Solutions Monitor banking (credit growth) at system level
Fed New York started thinking in 2009
The ECB has just recently (2011) decided to look at shadow banking in Europe
Design macro-prudential tools with system-wide reach
Loan-to-value ratios for mortgages
Margin requirements for equity

15. Europeam Financial Integration 0809
Conclusions
Traditional focus on banks, which are only part of the financial system
Challenge:
To monitor credit growth at shadow banks
To design macro-prudential tools that work system-wide
But focus still on micro-prudential rules for banks (Basel III) -> reinforces shift to shadow banking
We need some “out of the micro-box” thinking at central banks!
D. Schoenmaker 15

16. Europeam Financial Integration 0809
Background reading
Adrian and Shin (2009), The Shadow Banking System: Implications for Financial Regulation, Federal Reserve Bank of New York Staff Reports, No. 382.
Pozsar, Adrian, Ashcraft and Boesky (2010), Shadow Banking, Federal Reserve Bank of New York Staff Reports, No. 458.
Oliver Wyman (2010), The Financial Crisis of 2015: An Avoidable History.
Financial Stability Board (2011), Shadow Banking: Scoping the Issues.
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