This paper studies the specificities of shadow banking in Europe. It highlights striking differences between the EU and the US shadow banking sectors based on both market structure and legal micro-infrastructure of the shadow banking sectors in these two jurisdictions. It argues that these different institutional and legal infrastructures, as well as the different trajectories in the evolution of the shadow banking sectors in terms of business models, size and composition of actors and transactions, can be the driving force behind the differential regulatory treatment of shadow banking across the Atlantic. In highlighting such differences, this paper focuses on repo transactions, as the main instruments that play a significant role in credit intermediation outside the regulatory perimeter of the banking system. It then discusses money market funds and highlights differences in their structure, functioning, and their existing regulatory treatment. The paper concludes that the market structure, business models, and legacy legal and regulatory frameworks of shadow banking display substantial differences across the Atlantic. The findings in this paper rally against one-size-fits-all approaches to addressing the problems of the shadow banking system worldwide and recommends differentiated and more nuanced regulatory approaches to regulating shadow banking across the Atlantic.
On the Market Structure of Central Counterparties in the EU