Shadow Banking System Essay

Financial crisis and beyond The single regulatory structure is restructured as a response to the crisis. National supervisors face greater harmonisation of practice at EU level. The need to prop up the banking system introduces a new actor, the Resolution Authority (in the UK a role of the Bank of England), as the Tripartite Authorities50 put in place legislation to deal with bank resolution after the collapse of Northern Rock. Major banks are now required to have recovery and resolution plans (‘living wills’). Government announces the planned break-up of the FSA in 2012. It transfers the prudential supervision of banks

This necessitated the need for development of regulatory measures for the industry. Bank regulation is a legal structure by which all financial

Before the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933 and the general conception of government safety nets, the United States banking industry was quite different than it is today. Depositors assumed substantial default risk and even the slightest changes in consumer confidence could result in complete turmoil within the banking world. In addition, bank managers had almost complete discretion over operations. However, today the financial system is among the most heavily government- regulated sectors of the U.S. economy. This drastic change in public policy resulted directly from the industry’s numerous pre-regulatory failures and major disruptions that produced severe economic and social

This paper is about how did “Shadow Banking” precipitate the financial Crises. Then discusses the impacts of the crisis on the major financial institutions.

Andrew Bailey (2013) “The future of UK banking - challenges ahead for promoting a stable sector”. Bank of England [online]. Available from:

The relationship between the teacher and the student can be associated with two different methods of learning. Paulo Freire suggests the “The ‘Banking’ Concept of Education”, in which the teacher “fills the account” of the student with information and knowledge they have (318). Freire also explains the concept of “problem posing” learning that contradicts the “banking” concept. This way helps the student become more involved with their education, and they are able to become a more well-rounded student. But Freire ignores to add any supporting detail to his points based on how a student feels about each method of education. Determining the best way of an education is all

In 2008, one of the worst financial crises since the Great Depression occurred. The severity of this collapse cannot be understated as demonstrated by the bankruptcy of Lehman Brothers, the fourth largest investment bank in the US, and with many other financial institutions such as Merrill Lynch and the Royal Bank of Scotland having to be bailed out. In addition, the Global Banking System was within a whisker of collapsing and if it where not for the trillions of dollars invested in the system by national banks then this banking collapse would have lead to economic catastrophe. Therefore, in order to avoid such a calamity from occurring again, it is important to ask the question why did this financial recession occur and what factors contributed towards this downfall? Although there are many reasons as to why this recession occurred it could be argued that securitized lending and shadow banking played the largest role in this economic crisis. It is therefore important to understand what securitized lending and shadow banking means. Securitized lending is the process by which a financial institution such as a bank pools illiquid assets, such as residential and commercial mortgages and auto loans (by which the bank receives from the public through house mortgages and loans), and loans these newly formed short-term bonds to third party investors in exchange for cash or collateral. Since its creation in the 18th century, securitized lending was increasingly popular and very much

The shadow banking system can be approximately defined as “the system of credit intermediation that includes objects and activities outside the regular banking system”. Its form is correlated to the way in which the banking sector and the

The Bank of the United States is a symbol of the long held American fear of centralization and government control. The bank was an attempt to bring some stability and control and was successful at doing this. However, both times the bank was chartered, forces within the economy ultimately destroyed it. The fear of centralization and control was ultimately detrimental to the U.S. economy.

banking system similar resembles the interconnected aspects forming in the 19th century US banking system, and ultimately, the same outcome will bring about a panic. Due to the nature of such an interconnected system, when Bank A goes on a run, it caused correspondent banks to pull their money out of Bank A until Bank A can no longer afford to make payments and it fails. This stems a panic as people notice Bank A failed and begin pulling their money out of all the banks at once, fearing their bank is the next one to go bankrupt, causing the money to simply leave the system opposed to move around internally. These consequences force the banks to seek outside money, of which they went to their correspondent banks in London which received funding

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

In the shadow banking system there is an highly important part in the process which is the securitisation process. The securitisation process is a method where illiquid assets are transformed into liquid tradable instruments. In more detail the securitisation process is a method which gives the banks the opportunity to removes the loans from the asset side of their balance sheet meaning that they evenly spread the associated risks to the other financial units. This could be due to the fact that shadow banks are largely unregulated. However during the financial crisis the shadow banking system also helped magnify the risks in the banks balance sheets since after the financial crisis there was an increase in the regulation in the shadowing banking system.

The Financial Services Act of 2012 in the UK came into force in 2013 on 1st April. This Act has the government reforms on the financial regulatory structure in the UK. The Act gives the new guidelines on the management of the banking sector and other supervisory roles in the financial services sector. This Act bestowed the oversight role to the Bank of England which is therefore expected to be responsible for the occurrences in the financial system and how the financial institutions manage their balance-sheet risks. This Act also stipulates that three more bodies are to be formed to assist in managing this sector. These bodies include the Financial Policy Committee (FPC), Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA). This Act affects significantly the two previous Acts which have been running the sector. These are the Financial Services and Markets Act of 2000 and the Bank of England Act of 1998. In this paper, the Act is clearly analyzed and mostly the effects it has on the Financial Regulatory Regime in the UK (Noked 2013). The economy of the UK has been following a laissez-faire system since 1979 (Allan and Stuart 2011)

Technological advancement has had a gigantic effect in the banking industry. Over the past few decades, the financial services industry has changed considerably with banking transforming from the pen and paper method to the computers and internet method. The pen and paper method took weeks or even months for the transaction to be eventually completed, and then the dramatic introduction of the computer and internet method which changed that time frame to only a matter of seconds to be completed, which reduced the amount of time and labor needed to complete a transaction significantly. Banking is considered one of the most important economic sectors with it being severely influential and responsive to any little change, whether it is domestic or international. Some extreme changes that were brought about by the development of this new technology turned into a globalized nature for the financial services industry. One stroke of a key on a computer could and would change a person 's life extensively or even have a global impact. The new technologies that were created and introduced changed how the consumers managed their money from that time on. Technology has helped to protect peoples’ hard earned money and make it much more impossible for people to be able to write out bad checks or even holding up a bank. The advancement in technology however, also came with some security risks as most things do, that could affect the money that people trusted with the bank and

Private banking industry has changed in a very basic way, driven by many key factors such as: free competition systems, modern developments in information technology (in particular, developments of the internet), and changing demographics. Private banks now operate in an environment shaped by increasing and shifting regulations, and in markets influenced by the uncontrolled situations of the world economy and geopolitical issues.