This chapter deals with the economic rationale for regulating shadow banking. It discusses whether the regulatory initiatives proposed by academics and policymakers are consistent with this rationale. We posit that the ultimate goal of financial regulation is to promote financial stability. Therefore, we evaluate shadow banking regulation based on its ability to reduce financial instability efficiently. Regulating shadow banking is challenging because shadow banking is often defined by reference to what it is not, namely, licensed or official banking. However, such an approach does not capture the essence of the shadow banking problem. The official banking system has implicitly or explicitly supported a significant part of what is known today as shadow banking. For instance, the asset backed commercial paper (ABCP) conduits or the structured investment vehicles (SIV), which were exposed to the United States (US) housing market during the global financial crisis (GFC), all enjoyed guarantees by banks – so-called ‘put options’ – by way of contract or reputation. The remainder of shadow banking was still problematic for financial stability because of the contracts in which shadow banks were counterparty to banks. American International Group (AIG), for instance, was counterparty to a significant part of the banking system relying on credit default swaps (CDS) to insure against the default of mortgage-backed securities (MBS).
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Chapter 1 introduces the phenomenon of outsourced law, which is characterised by the imposition of goals, while leaving it to the addressees to devise the means by which these goals can be achieved. It is argued that the kind of regulation that is developed in this way should not be regarded as separate from formal law. Law and regulation are different and interconnected styles of guiding human behaviour. In order to analyse and contrast these styles a philosophical perspective is called for. Law and regulation should be studied as normative orders with a dynamic of their own; they are not just steering instruments. Outsourced law will be studied by analysing the types of rules that are produced as well as the way people actually use these products, by analysing underlying aspirations and by examining the many intended or unintended changes that are brought about by the adoption of that style.
Iris H.-Y. Chiu and Iain G. MacNeil
‘Shadow banking’ refers to a range of activities that have bank-like character, that is, credit intermediation, liquidity and maturity transformation, and that are undertaken outside the regulated banking system. This can mean activities carried out by non-bank entities that mimic bank-like activities, but can also refer to activities carried out by banks and other regulated firms that do not always operate within the established fabric of regulation they are subject to. Although such activities may be seen as a form of financial innovation, the relationship between innovation and regulatory arbitrage remains uneasy. The former is often viewed more positively than the latter, although it is clear from history that the former has often driven the latter (for example, the emergence of the Eurobond market). The Financial Stability Board (FSB) has provided leadership in developing international surveys of shadow banking activity around the world and policy thinking to govern these areas. In 2013, the FSB set out in a policy document the need to consider how shadow banking activity affects financial stability, but its focus was inevitably on known areas whose risks have played out in the global financial crisis of 2007–09. The spotlight on these areas has nevertheless led to regulatory reforms in many parts of the world, discussions of which are canvassed in this volume, but issues remain outstanding in relation to the effectiveness and scope of reforms.
Malgorzata A. Carran
‘My mum keeps crying but my dad will not ask for help, he says he doesn’t need it’ (17, female) The terms gambling-related harm and vulnerability to such harms are too frequently referred to with the implicit assumption that their meaning is understood consistently and their scope readily agreed upon. Yet, they represent a social construct with often fluid boundaries that is influenced and shaped by political and cultural discourses. This chapter exposes how the UK’s regulatory framework adopts, in substance, a narrow understanding of these two interrelated concepts that emphasises individual pathology at the expense of taking a wider and equal view of all the agents of vulnerability and all the dimensions of gambling-related harm. This, in turn, leads to an imbalance in what social responsibility initiatives become the focus of regulation, which, on the whole, marginalises those who may find themselves in the highest need of social protection.
Edited by Colin Fenwick and Valérie Van Goethem
Colin Fenwick and Valérie Van Goethem
Legal and Policy Aspects
Although we have long moved on from a spacefaring environment dominated by the actions of two State powers, modern space law is still centred on the notion of ‘launching States’, including as the basic concept for applying the Liability Convention. This chapter asks whether the legal framework established at the time of adoption of the Liability Convention is still efficient for the regulation of commercial space ventures, in particular by questioning the continuing relevance and definition of the concept of ‘launching State’. This question will be considered in four steps, discussing in turn (1) the importance of the notion of launching States; (2) the interest of holding States liable for damage caused by a space object; (3) the implications of private entities getting involved in this framework; and (4) the entity carrying the risk created by private space activities. Keywords: launching State; liability; private actors
Legal and Policy Aspects
Jan Wouters, Philip De Man and Rik Hansen
The Evolution of Australian Policy on Trade and Investment
Andrew D. Mitchell, Elizabeth Sheargold and Tania Voon
Although a major proponent of multilateralism, in recent decades Australia has become an enthusiastic participant in bilateral and regional economic initiatives. This chapter provides an overview of Australia’s entry into preferential trade agreements and bilateral investment treaties, situating each generation of these agreements in its political and economic context. It examines how the scope, objectives and content of these agreements have changed over time, identifying key factors that have influenced these changes. The chapter also explains the meaning of ‘regulatory autonomy’ in this book and outlines the structure and purpose of the rest of the book. By their very nature, trade and investment agreements limit regulatory autonomy, by precluding States from implementing policies that adversely affect international trade or foreign investment. This chapter explains why services, intellectual property and investment are of particular concern for Australia, as explored in greater detail in subsequent chapters. Keywords: international economic law, investment, policy space, public international law, regionalism, trade