Vol 15 (2018) - Issue 1

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Beyond the Regulatory Border: Shadow Banking and the Asset Management Industry

Introduction
Transforming short-term assets into long-term loans is traditionally a process conducted by banks. Yet, shadow banking – defined as the intermediation of credit by non-banks – has expanded greatly in the decade since the global financial crisis. While supervising and regulating market-based finance has become a key policy priority over recent years, understanding of the shadow banking industry remains inadequate. The present contribution is therefore timely, but ultimately limited in its scope by widely acknowledge data shortages.

The continually evolving shadow banking system includes hedge funds, structured investment vehicles and money market funds. This article focuses on private debt funds offered by asset management firms, detailing the factors underlying the development of shadow banking, its associated benefits and risks, and potential regulatory responses. As the predominant type of private debt fund, the case of 'direct lending' is offered as an illustrative example of market-based financing.