“The term shadow banking was introduced in August 2007, when a market official in a speech at the Federal Reserve's annual symposium in Jackson Hole pointed out that in those years a form of intermediation based on a variety of of highly leveraged investment vehicles, conduits and other structures outside the banking system. On that occasion it was also explained that the shadow banking system, unlike traditional banks, financed itself through the market "exposing itself to a potential lack of liquidity, with the risk of having to sell assets in the portfolio forcibly and at reduced prices or ask for support to the sponsoring entities".
These are the words of Carmelo Barbagallo, the head of the banking and financial supervision department of the Bank of Italy, who spoke yesterday at the World Finance Forum 2015 promoted by the New International Finance Association at the Catholic University of Milan and of which we attach the link of the entire intervention.
We know what the risks of shidaw banking are for the financial markets and for the banking system, but Barbagallo reviewed them analytically and focused in particular on the international regulatory initiatives and on those of the Bank of Italy.
“It is essential – explained Barbagallo – to avoid generating shadow risks of a systemic nature in Italy as well” and this has inspired the recent interventions of the Bank of Italy. In particular, Via Nazionale has envisaged "prudential rules to avoid a transfer of credit risk within financial conglomerates from the banking sector to the insurance sector for the sole purpose of reducing capital requirements", insisted at EU level that the European Long-Term Investment Funds (Eltif) "are exclusively closed-end funds, to avoid liquidity risks and transformation of maturities", and finally set "stringent limits on leverage".
Attachments: Shadow Banking.pdf
