According to new Global Financial Stability Report of the International Monetary Fund, shadow banking constitutes one-fourth of total financial intermediation worldwide. Since they are closely intertwined with the financial sector, hedge funds or money market funds can easily jeopardize the financial stability. In comparison with the highly dynamic finanical industry, the regulators, however, always get the short end of the stick.
In his paper, IMFS Associated Professor Tobias Tröger argues that a normative construction of available rules limits the scope for regulatory arbitrage and finally is more successful in regulating shadow banking activities.
IMFS Working Paper 83:
"How Special Are They? Targeting Systemic Risk by Regulating Shadow Banking"
(PDF, 722 KB)