ABSTRACT
An analysis of the shadow banking system provides at least two insights into the legal underpinnings of the financial system. On the one hand, shadow banking operates on a global or transnational scale, which makes it difficult to relate it to a single national legal framework. On the other hand, shadow banking displays the effects of an ineffective legal framework when ‘adverse’ economic conditions arise. The Financial Stability Board defines shadow banking as “the system of credit intermediation that involves entities and activities outside the regular banking system” (FSB 2011a: 3) and it has recently been “at the heart of the credit crisis” (Pozsar 2008: 17). Indeed, the systemic importance of shadow banking for global finance came to light during the financial crisis of 2007–2008. Paul McCulley (2014), who first coined the term ‘shadow banking’ in 2007, refers to the balance of private and public forces that were distorted before and during this financial crisis. Since then, regulators have endeavored to rebalance the banking system (IOSCO 2009; BCBS 2011; Bakk-Simon et al. 2012; IMF 2014; ESRB 2015; FSB 2015a).
