| Summary: | 碩士 === 中國文化大學 === 法律學系碩士在職專班 === 105 === A primary reason of the 2008 Global Financial Crisis is the securitization of subprime mortgages. These securities were sold globally, causing systemic risk in global financial markets and severely influencing the global economy. In the aftermath of the crisis, many countries began to review their respective financial regulatory systems, and corresponding international organizations were urged to install a set of uniform financial regulations; particularly to reinforcing the regulations of shadow banking systems, which had been implicated as a significant contributing factor towards the 2008 Global Financial Crisis.
According to the Financial Stability Board, shadow banking system is defined as “… the system of credit intermediation that involves entities and activities outside the regular banking system.” However, the highly interconnected, leveraged, and large-scale sized shadow banking system exposed by the financial crisis of 2008 were revealed to be under low regulations. As a result, the Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into Federal law by President Barack Obama on July 21, 2010 as a response to the financial crisis in 2008. The core values of Dodd-Frank Act is to reform the regulatory mechanism of financial institutions, to perfect the regulatory mechanism of market trading, to reinforce the protection of consumers and investors, to implement the tools in response to the financial crisis, to raise the regulatory standards, and to promote international cooperation on regulations.
However, in contrast to the Western shadow banking system, China’s shadow banking is completely different. Since China’s policy is to take a strict regulatory monitoring approach, the shadow banking system in China is an important supplier of loans in the financial market. Western shadow banking, referred also as parallel shadow banking, is comprised of investment banks, hedge funds, private equity funds, money market funds, insurance companies, and structured investment vehicles and other non-bank financial institutions. This system works on the money market, securitization, and investments in various structured vehicles. In contrast, the rise of China’s shadow banking is to skirt regulation, and to move loans off the balance sheets into a category of investments that requires less provisions than loans. Since commercial banks play a prominent role in the Chinese financial system and the capital and credit of China’s shadow banking system primarily relies on support from commercial banks, China’s shadow banking system has the advantage of non-bank financial institutions on business and customer sources. Thus, since China’s shadow banking derives its legitimacy directly from commercial banks, China’s shadow banking could be said to more precisely describe the term “a bank’s shadow”.
The present article seeks to explore the main principles, measures, and implementation problems of the regulatory and monitoring framework of the western shadow banking system, wherein the present article will also seek to make recommendations for Taiwan based on the finds of the Dodd-Frank Act. Secondly, the present article seeks to understand the scope of China’s shadow banking and thereof effects on China’s financial system. Thirdly, the present article seeks to analyze the process of interest rate liberalization, financial regulatory reforms, and enterprise support of the PRC and Taiwan by comparing their respective shadow banking development history, and regulatory implementations.
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