Generally, the outsourcing of business activities from areas subject to regulatory oversight to agents not subject to regulatory oversight (financial engineering designed to evade regulation). – The transfer of prudentially supervised transactions – from the domestic market to own branches in countries with less stringent supervision, including within the EU, or – to areas of the global financial market not subject to strict supervision, such as mainly in-house hedge funds, private equity funds, money market funds, vulture funds and trading firms. At the beginning of 2011, this shadow banking sector (parallel banking sector) was estimated to be a quarter larger in size than the conventional banking system in the United States. In general, the tighter the regulation, the stronger the incentives for regulatory arbitrage. – The shift of credit risk from banks to pension funds, hedge funds and insurance companies, and in securitized form to special purpose vehicles. This tends to make it very difficult to assess the balance sheets of the outsourcers, as was evident in light of the Enron scandal in the U.S. in late 2001 and, on occasion, the subprime crisis in 2007. – It is now undisputed that banking operations must be subject to the same regulation everywhere, regardless of where they are conducted; “something that looks like a bank and acts like a bank should also be treated like a bank,” as the principle here goes. – See aggregation, Anderson scandal, supervisory avoidance, outsourcing, committee mania, bank regulatory paradox, corporate governance, enforcement, financial engineering, financial investor, harmonization, managed bank, market manipulation, cross-border, outsourcing, alignment of laws, regulatory equality, shadow banking, Sarbanes-Oxley Act, loss camouflage, preemption, zombie bank, special purpose entities. – Cf. ECB Monthly Report of May 2005, p. 93 ff., BaFin Annual Report 2009, p. 149 (international alignment reduces regulatory arbitrage; importance of colleges), and the respective BaFin Annual Report.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/