Shadow Banking
Shadow Banking takes on multiple forms, but is mainly non-commercial banks providing services similar to or the same as commercial banks. The growth in shadow banking has several causes. Increased regulations on commercial banks that limit their service offerings is one factor. Another is the ability of shadow banks to offer higher returns than commercial banks. Such institutions continue to grow because they are offering services consumers want, but can’t obtain from commercial banks.
Shadow banking is generally lightly regulated or unregulated. However, since the 2007 financial crisis, western governments have examined shadow banking in more detail and have imposed a number of new regulation on their activities. Thus, it is incorrect to say the industry is unregulated unless you specify a particular country where that is true.
Assignment:
- Read the article on Shadow Banking Shadow Banking – Alternative Formats (the blank space contains the above video on the Economist website).
- Undertake additional research as needed – remember that citations and references are required.
- Follow the format below and need a report to investors that answer the following questions:
- What is Shadow Banking?
- What services do Shadow Banks provide?
- What are the advantages of using a Shadow Bank?
- What are the disadvantages (risks) of using a Shadow Bank?
- How are Shadow Banks regulated or are they regulated?
- Do you recommend that your investor use the services of a Shadow Bank (investor risk preferences play a role here)? And why?
This is a research report, so the format is a bit different from the one used in Week 2:
- An Introduction where you set the background and the objectives of the research report.
- Concepts: here you define the terms and concepts used in the report.
- Research Finding: here you discuss the particular facts that you found which answer the above questions.
- Recommendation and conclusion: here you will answer the last question and explain your reasoning. Remember there may be different answers for investors with different risk preferences. Provide specific and detailed recommendations.
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