Part 4: The regulation of Shadow Banking System in foreign countries.

The proper inflation helps economic development, but over-inflation can lead to national bankruptcy. Monetary policy can control inflation, but the existence of the shadow banking system can make the monetary policy failure, causing serious inflation, resulting in the bubble economy, leading to economic crisis. Therefore, government must supervise and regulates the shadow banking system. 

After the 2008 global financial crisis, each government in the world have to strengthen the study of the shadow banking system, made a series of laws and regulations aimed at strengthening the supervision of shadow banking system.

The following part is the summary of the relevant supervisory method.

 1.     Strengthen the supervision of “shadow institutions”

First, begin to regulate the hedge funds, private equity funds and other shadow institutions.

Second, strengthen the regulation of information disclosure. Like the US. Securities and Exchange Commission issued new rules to enhance the liquidity of money market fund industry, credit standards and information disclosure, implementation a higher standards for money market mutual funds.(detail click here)

2.  Strengthen the supervision of “shadow products”

First, strengthen the supervision of the repo market, the Federal Reserve System was be given the power to establish a more stable financing system, to solve the problem of volatile short-term repo market, and ensure the operation of the markets are more health.
Second, regulate OTC derivatives trading. The United States government authorized the Commodity Futures Trading Commission and Securities and Exchange Commission on OTC derivatives regulation. They have the right to decision the trading institution's capital and margin requirements in swap, and limit its risk.(detail click here)

3. Strengthen banking supervision, to reduce the cooperate between the traditional banking and shadow banking

First, according to the Volcker Rules require, prohibit banks own or investing in private equity and hedge funds.

Second, strengthen the consolidated supervision, begin to supervise the Off-Balance Sheet Activities of the traditional bank.
Third, limit the size of the shadow banking system which support by the traditional banks, set higher capital requirements to shadow banking’s risk exposure.
Fourth, strengthen the coordination between the regulators; reduce the structural arbitrage between the banking system and financial system. (detail click here)

4. Establish mature and feasible monitoring methods to strengthen the monitoring of the shadow banking system.