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The shadow banking system, still here… still growing

Here’s a little digression, but interesting nevertheless.

It has been over 5 years since the financial crisis struck. Reduced banking regulation (since early 1980s) was certainly a big part of what led to the 2008 near-meltdown (by allowing banks to own investment banking divisions that make risky bets). But even with more regulation, there would have still been a massive unregulated “shadow banking” system. Once the financial meltdown subsided, financial regulation has been beefed back up, with some effect. But what has been done about the less regulated part? Actually, the shadow banking system has continued growing.

Below is a chart giving a sense of what happened in the USA since 2008. The blue line shows total non-bank (“shadow banking”) assets. The red line shows assets as % of GDP. The size of non-bank financial intermediation was equivalent to 117% of GDP in aggregate at the end of 2012 for 20 jurisdictions and the euro area. Note: special thanks to our team member Simon Godfraind (Warcoqué Faculty, Université de Mons-Hainaut), for making me aware of this.

But what has been done about the less regulated part? Actually, the shadow banking system has continued growing. Below is a chart giving a sense of what happened in the USA since 2008. The blue line shows total non-bank ("shadow banking") assets. The red line shows assets as % of GDP. The size of non-bank financial intermediation was equivalent to 117% of GDP in aggregate at the end of 2012 for 20 jurisdictions and the euro area. Note: special thanks to our team member Simon Godfraind (Warcoqué Faculty, Université de Mons-Hainaut), for making me aware of this. Shadowbanking Source: http://info.publicintelligence.net/FSB-ShadowBanking-2013.pdf  '>The shadow banking system, still here... still growing

Shadowbanking

Source: http://info.publicintelligence.net/FSB-ShadowBanking-2013.pdf