SHADOW BANKING AND REPO MARKETS IN EUROPE AND THE UNITED STATES: A COMPARATIVE ANALYSIS
SHADOW BANKING AND REPO MARKETS IN EUROPE AND THE UNITED STATES: A COMPARATIVE ANALYSIS

Summary/Abstract: Shadow banking became a highly debated topic in the aftermath of the global financial crisis and a major concern for regulators given its global size, estimated at about a quarter of the total financial system. As one of the intertwined pillars in the definition of shadow banking, referring to the main activities outside the regular banking system that provide funding to non-bank entities according to the Financial Stability Board Report (2011) and the European Commission Green Paper (2012), repurchase transactions (“repo”), along with securitization and securities lending, came under a greater regulatory scrutiny in both the United States and European Union. This paper provides a comparative analysis of the main instruments, players and arrangements of the US and euro area repo markets, two important and dynamic markets in the global financial system during the past half-century. Special focus is given to the impact of the financial market turmoil that began in August 2007 and also to the challenges emerging from the inclusion of repo in the current regulatory work on shadow banking, especially those related to the possible introduction of macro-prudential requirements and the improvement of the repo markets infrastructure.

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