“If it looks like a duck, quacks like a duck, and acts like a duck, then it must be a duck - or so the saying goes. But what about an institution that looks like a bank and acts like a bank? Often it is not a bank – it is a shadow bank” – (Laura E. Kodres)
Shadow banking is a bit of a modern day marvel, so to speak, taking on several complex forms. “The term Shadow Banking generally refers to the non-banking financial institutions that perform some banking functions but are not regulated or are less regulated than banks. In other words, they are either unregulated or under-regulated financial entities. The shadow banking system or the shadow financial system consists of financial institutions, which do not accept deposits from
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While shadow banks conduct credit and maturity transformations that are relatively similar to traditional banks, they tend to do so without any direct public source of liquidity and risk insurance by means of the Federal Reserve’s discount window and the FDIC. This details why shadow banks were and are so fragile. Banks also perform a lot of the same functions. With the only noticeable difference being, shadow banks use what are called non-deposit liabilities while banks use what we call deposit liabilities. Leading up to the financial crisis debacle in 2008, many commercial banks were extremely active, as were government-sponsored entities like Freddie Mac and Fannie Mae, in shadow banking activities. The financial institutions that participated still had activities that were "off the books," meaning, in spite of these new instituted regulations, they were still participating in shadow banking activities. Shadow banking is not illegal and does not involve illegal practices of any type. However, it does involve dodging certain legal requirements so the financial organization involved does not break any laws; but does not necessarily abide by them either. For example, there are laws that require banks to hold a certain amount of capital with regards to the amount of money they may lend. By taking a loan and selling it to another company, or a company whom is not a bank and therefore is not subject to the same legal limitations as banks, then buying it back packaged up as
Thomas Farrow was a very smart man who had a great idea and followed through with it. He decided to start a bank and run things in his own way without much oversight from other banking professionals. His stubbornness and greed got in the way of what could have been a very successful venture. He would not be the first person to make a mistake while taking on a new venture. Mr. Farrow let early success cloud his vision of a long and success bank by not listening to those who knew better. He knew that he was providing services that were not available at other banks so he set out to capitalize on those endeavors. Mr. Farrow only saw money, and this is clearly why he failed where other banks succeeded. By ignoring simply and well established banking practices, Mr. Farrow set his bank up for failure. Thomas allowed his hubris to cloud his judgment and in the end he would listen to no one.
The PBS Frontline Documentary, “The Untouchables” produced by Martin Smith details how those responsible for the 2008 financial crisis, caused by the failing of multiple mortgage backed securities that were fraudulently cobbled together with very lax oversight, were never criminally indicted for their actions. Part of the explanation from the Justice Department was that they were afraid that aggressively pursuing the presidents and vice-presidents of the banks involved in the fraudulent mortgage backed securities would make the banking industry even more unstable. This was something that they were very reluctant to risk, since so many banks were already beginning to close. In the documentary,
The banks are faceless and cruel. What would be a modern representation of these banks?
The banking industry has over the years evolved from simple to large and complex organization. They have grown from one street building into having multiple branches some of which are international. Their clients range from individual and institutions to governments and other banks. Banks do not manufacture physical things. Their work is simply services for money (Koch & MacDonald 2010). Such services include storing, lending and managing money. All people and institutions, as well as governments, need money to operate accordingly.
Morrison suggests that government should try to make regulations that can make TBTF policy effective rather than, try to end the policy, which is impossible. Morrison discusses the role of the policy in designing suitable capital regulations, in the restriction of bank scope and in institutional design. The author argues that financial institutions receive help from taxpayers and government because regulatory authorities believe that its failure would have severe effects on the country’s economy.
Andrew Bailey (2013) “The future of UK banking - challenges ahead for promoting a stable sector”. Bank of England [online]. Available from:
In this paper, I will identify security threats that Bank of America faces today. In addition, I will describe the techniques and processes used to identify the vulnerabilities and threats, describe risks to the information and related vulnerabilities within Bank of America when utilizing components of the web. Discussions on BoA safeguard against legal issues will be addressed followed by the types of social data that potentially cause problems for this bank institute. In conclusion, I will explain the legal, ethical, and regulatory requirements Bank of America utilize for the protection of the organization.
Banks have been at the forefront of the financial system for as long as they have existed and have captured the attention of stakeholders on both controversial grounds as well as being undisputed with regards to the many helpful services they provide. JP Morgan & Chase is one such bank, surrounded by hostile news articles and excessive scrutiny but rightfully so as it has of recent been the topic of much controversy as turning a blind eye to the moral codes established by the Securities and Exchange Commission (SEC) and assisting Ponzi Scheme masterminds in swindling unsuspecting investors.
Shadow Banking Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky Federal Reserve Bank of New York Staff Reports, no. 458 July 2010 JEL classification: G20, G28, G01
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.
In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout
The bank's main owner, Ramón Báez Figueroa, was accused of operating a secret “bank within the bank” by officials for more than ten years (Economist, 2003).
Because development banks tend to be government-run and are not accountable to the taxpayers who fund them, there are few checks and balances preventing the banks from making bad investments.
Offshore banking is the action of having a bank account outside of the country of residence. Typically it offers many advantages like greater privacy, low or no taxation, easy access to deposits and protection against local, political, or financial instability, but has also been popular for its use of illegal practices like money laundering and tax evasion. Those against offshore banking view its illegal reputation and predict that it will only cause further damage like providing fund for terrorism or holding underground economies. However other experts believe that offshore banking is a safe haven for depositors and has had a substantial impact on the international economy in today’s world.