Shadow Banking for Connected Lending and The Countermeasures: Turkish Case

Paper aims to provide some lessons from the Turkish experiences to regulatory bodies which would like to take measures against shadow banking. It is organized as literature review and case study.The literature review firsly covered the need of banking regulation, then shadow banking and shadow credit intermediation process and the question of how these activities are implemented. The case study described how the banks transferred to Saving Deposit Insurance Fund between 1998-2001 extended more loan to their principal shareholders exceeding legal limits for connected lending via their affiliates or the entities set up in unregulated jurisdictions by considering Shapiro’s (2003) models for intercompany lending activities of the multinational companies and the similarities with the shadow credit intermediation and countermeasures developed by the Turkish authority for them. Our main finding is that it would be needed to revitalize the forgotten justification for banking regulation, keeping them small, asserted by Mishkin (2001). This is why, it could help it to develop the regulations not only by function but also by form.