Tuesday, November 1, 2011

Shadow Banking Sector Exceeds PreCrisis Levels


Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

FSB data published in its October 27, 2011 report, Shadow Banking: Strengthening Oversight and Regulation, reveals that among the eleven largest economies with significant shadow banking, the shadow banking sector has surpassed the levels prior to the financial crisis.
Aggregated results using Flow of Funds data from eleven jurisdictions (Australia, Canada, France, Germany, Italy, Japan, Korea, Netherlands, Spain, UK and US) broadly accord with this picture. Non-bank credit intermediaries grew from $23 trillion in 2002 to $50 trillion in 2007, and has fallen a little to $47 trillion in 2008 but recovered to $51 trillion in 2010.
Further, the FSB data reflects a growing size and importance of the shadow banking sector relative to the financial system as a whole and to aggregate bank assets.  
In aggregate, the shadow banking system (non-bank credit intermediaries) seems to constitute some 25-30% of the total financial system and is around half the size of bank assets. There is a considerable divergence among jurisdictions in terms of the importance of non-bank credit intermediaries in the overall financial system.
As we mentioned in our October 29, 2011 post, Geithner: Shadow Banking Remains a Key Regulatory Target, shrinking the shadow banking sector figures prominently in the plans of regulators in the US. The FSB statistics reflect some success on that count for US regulators.  Though shadow banking has increased in size overall, and the US shadow banking system remains the largest, the US share of total of the 11 countries surveyed has decreased to 46% from 54% in 2005.  


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