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Thu Apr 11, 2019, 08:28 PM

Shadow banking is a $52 trillion industry posing a big risk to the financial system

Nonbank lending, an industry that played a central role in the financial crisis, has been expanding rapidly and is still posing risks should credit conditions deteriorate.

Often called "shadow banking" a term the industry does not embrace these institutions helped fuel the crisis by providing lending to underqualified borrowers and by financing some of the exotic investment instruments that collapsed when subprime mortgages fell apart.

The companies face less regulation than traditional banks and thus have been associated with higher levels of risk.

In the years since the crisis, global shadow banks have seen their assets grow to $52 trillion, a 75% jump from the level in 2010, the year after the crisis ended. The asset level is through 2017, according to bond ratings agency DBRS, citing data from the Financial Stability Board.

The U.S. still makes up the biggest part of the sector with 29% or $15 trillion in assets, though its share of the global pie has fallen.

China has seen particularly strong growth, with its $8 trillion in assets good for 16% of the total share.

Within shadow banking, the biggest growth area has been "collective investment vehicles," a term that encompasses many bond funds, hedge funds, money markets and mixed funds. The group has seen its assets explode by 130% to $36.7 trillion and poses particular danger because of its volatility and susceptibility to "runs" and is part of the "significant risks" DBRS sees from the industry.

In his annual letter to investors, J.P. Morgan Chase CEO Jamie Dimon warned about the risks of shadow banking, though he said he does not see a systemic threat yet.


Here we go again.

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Reply Shadow banking is a $52 trillion industry posing a big risk to the financial system (Original post)
Yo_Mama_Been_Loggin Apr 11 OP
riverine Apr 11 #1

Response to Yo_Mama_Been_Loggin (Original post)

Thu Apr 11, 2019, 08:36 PM

1. Well there is one big difference this time

We now know home prices can fall. A lot.

Back in the mortgage bubble I heard thousands of people say "Home prices only go up! It is the safest investment you can make!"


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