The Financial Stability Board’s (FSB) sixth annual shadow banking survey found that the shadow banking market remains robust and growing, equivalent to 13 percent of total financial system assets and 70 percent of the GDP of 28 covered jurisdictions. The report published May 10, 2017 presents the results of the FSB’s annual monitoring exercise to assess global trends and risks in the shadow banking system, reflecting data up to the end of 2015. It covers 28 jurisdictions, adding Belgium and the Cayman Islands for the first time. Notably, however, China failed to provide data for this latest report.[1]
Among the findings from the 2016 exercise are:
- The activity-based, narrow measure of shadow banking was $34 trillion in 2015, increasing by 3.2% compared to the prior year, and equivalent to 13% of total financial system assets and 70% of GDP of these jurisdictions.
- Credit intermediation associated with collective investment vehicles (CIVs) comprised 65% of the narrow measure of shadow banking and has grown by around 10% on average over the past four years. The considerable growth of CIVs in recent years has been accompanied by liquidity and maturity transformation and in the case of jurisdictions that reported hedge funds, relatively high level of leverage.
- Non-bank financial entities engaging in loan provision that are dependent on short-term funding or secured funding of client assets, such as finance companies, represent 8% of the narrow measure, and grew by 2.5% in 2015. In at least some jurisdictions, finance companies tended to have relatively high leverage and maturity transformation, which makes them relatively more susceptible to rollover risk during periods of market stress.
- In 2015, the wider aggregate comprising “Other Financial Intermediaries” (OFIs) in 21 jurisdictions and the euro area grew to $92 trillion, from $89 trillion in 2014. OFIs grew quicker than GDP in most jurisdictions, particularly in emerging market economies.
The 2016 survey also included new data to measure interconnectedness among the bank and the non-bank financial sectors and to assess the trends of short-term wholesale funding, including repurchase agreements (repos). The FSB noted that, despite its new initiatives to improve data collection, data availability in this area still needs to be improved. Working with the data they were able to collect, the report's authors found that "on an aggregated basis, both banks’ credit exposures to and funding from OFIs have continued to decline in 2015, although they remain above the levels before the 2007-09 financial crisis.”
Based on the data and conclusions from this study, the FSB said it will report to the G-20 in time for its July summit on whether further regulation of the shadow banking sector is needed to ensure financial stability.
The full text of the FSB’s Global Shadow Banking Monitoring Report 2016 is available via: http://www.fsb.org/wp-content/uploads/20170509-GSBMR-press-release.pdf
[1] According to Reuters, "China's $7.7 trillion shadow banking sector, which includes non-bank forms of credit such as trusts and wealth management products, is dwarfed by that of the United States and Europe, but the speed at which it has expanded has become a concern to regulators at home and abroad worried about hidden systemic risk.” http://www.reuters.com/article/us-g20-shadowbanks-fsb-china-idUSKBN18618F