Regulators face difficult choices about how to regulate shadow banking. There is much they might learn from the choices made by Depression-era governments.
Shadow banking is a system of financial institutions that mostly look like banks. These highly leveraged institutions borrow in short-term debt markets and invest in longer-term illiquid assets. This part of the financial system includes asset-backed commercial paper (ABCP), money market funds, securities lending and collaterialised repos (at broker-dealers).
The size of this market is roughly $800bn in the US alone (and even larger by some estimates) and matches the size of deposits, both insured and uninsured, held at depository institutions. The growth of shadow banking over the past 25 years has been extraordinary relative to the growth of deposits.
Read the full piece from The Banker