Quantifying the Size of Shadow Bank Assets

The Financial Stability Board (FSB) recently released their report on the Global Shadow Banking market and has come up with a figure of $75 trillion for the market. That’s right, trillion. These are financial assets help by money fund, hedge funds, broker dealers, essentially anyone other than what is defined as a bank.

I’ve done some prior posts on this market here and here

I commented that the market lacks data and the real question is risk being pushed to where it cannot be seen?

The reason this is considered “shadow” (doesn’t that term really scare people) is that these loans are not regulated in the same way as banks. If we assume risk doesn’t change regardless of owner, is pushing loans to a more unregulated environment a bad thing. I mean the banks were regulated.

The FSB report commented that intermediating credit through non -bank channels can have important advantages and contributes to the financing of the real economy, but such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions (e.g. maturity and liquidity transformation, and leverage) and when their interconnectedness with th

Key findings:

  • According to an estimate by the Monitoring Universe of Non Bank Financial Intermediation (MUNFI for short), based on assets of Other Financial Intermediaries (OFIs), non bank financial intermediation grew by $5 trillion in 2013 to reach $75 trillion. This provides a conservative proxy of the global shadow banking system, which can be further segmented.
  • By absolute size, advanced economies remain the ones with the largest non-bank financial systems. Globally, MUNFI assets represent on average about 25% of tota financial assets, roughly half of banking system assets, and 120% of GDP. These patterns have been relatively stable since 2008.
  • Among the MUNFI sub-sectors that showed the most rapid growth in 2013 are Trust Companies and Other Investment Funds. Trust Companies experienced the fastest 2013 growth rate of 42%, which is in line with the sector’s average growth over 2007-2012. Other Investment Funds, the largest MUNFI sub-sector, recorded 18% annual growth in 2013, which represents a sharp acceleration from the average growth rate in the preceding years.

It should be noted that the Hedge Fund sub-sector remains significantly underestimated in the FSB’s exercise due to the fact that offshore financial centres, where most Hedge Funds are domiciled, are currently not within the scope of the exercise.

Bear in mind that many of these non banks are directly connected to the bank sector via lines of credit. Banks assets and liabilities do report this interconnectedness.

We know there is a massive movement to create non bank entities to fund wholesale and consumer credit continues, so this area will continue to get a lot more focus.

The chart below provides a nice summary, courtesy of the Financial Stability Board.



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