Shadow Banking and Regional Coordination in Asia : Risks, Challenges and Benefits

Concerns arising out of the systemic risks associated with ‘shadow banking' are inherently global in nature as a result of the interconnectedness of shadow banking activities across different jurisdictions and markets. Yet, despite ongoing efforts, it remains very difficult to achieve global coordination in the regulation and supervision of shadow banking. This paper examines the efforts that have been made, and the challenges that have been encountered, in achieving a coordinated response to shadow banking in Asia. The paper first provides an overview of shadow banking and the risks associated with it, canvassing some key responses proposed or taken with respect to shadow banking, including the work of the Financial Stability Board and the approaches in the European Union and the United States. It then focuses on the specific needs and risks inherent in the Asian region. The paper concludes by putting forward the case for a greater degree of regional coordination and makes a range of general and specific policy recommendations for this purpose, including the use of an existing regional body to drive coordination efforts and proposals