The Global Shadow Bank–Systematic Risk and Tax Policy Objectives: The Uncertain Case of Foreign Hedge Fund Lending to U.S. Borrowers and Transacting in U.S. Debt Securities

Abstract

The structure of the global financial system has drastically changed in the last few decades with the rise of what has been called a shadow banking system. The term “shadow banking system” refers to the fact that financial institutions outside the traditional banking system have acted as intermediaries between investors and borrowers and have increasingly undertaken roles traditionally played by banks, including lending capital to U.S. businesses. These intermediaries have included investment banks, hedge funds, and others that have expanded liquidity in many global financial markets, arguably increasing market efficiency.