The “shadow banking” system, as a credit intermediary outside of regulation and the regular banking system, has been regarded as one of the critical sources of the global financial crisis. International coordination of regulation on shadow banking has substantially improved since 2009, but bilateral and multilateral cooperation among advanced economies and emerging markets has made little progress. This is due to a combination of factors: the changing interests and attitudes of the developed economies; the passive approach of the developing world; great differences in financial market structures; the lack of enforcement of international standards; overreliance on political pressure through the Group of Twenty; and the professional, technical and linguistic weaknesses of emerging countries. China has witnessed a rapid growth of shadow banking in recent years and its attitude to international coordination in regulation of the shadow banking system has changed from a following strategy to a constructive, inclusive and pragmatic approach. However, its main goal is to develop a comprehensive domestic regulatory framework for shadow banking. Enhancing international collaboration presents a number of challenges. To overcome these challenges, necessary institutional reforms include a system of information sharing, the establishment of a third-party consultancy mechanism, further improvements to the regulatory framework and investments in building the regulatory capacity of emerging countries.

Part of Series

These papers are an output of a project that aims to promote policy and institutional innovation in global economic governance in two key areas: governance of international monetary and financial relations and international collaboration in financial regulation. With authors from eight countries, the 11 papers in this series add to existing knowledge and offer original recommendations for international policy cooperation and institutional innovation.
  • Zheng Liansheng is a senior research fellow and deputy director of the Research Center for Financial Law and Regulation at the Institute of Finance and Banking, Chinese Academy of Social Sciences (CASS).