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Shadow Banking System Larger than at the Start of the Financial Crisis

Posted By admin On November 19, 2012 @ 5:49 am In Money Watch | Comments Disabled

Washington’s Blog [1]
Nov 19, 2012

The failure to regulate the shadow banking system was one of the causes of the financial crisis.

As we noted [2] in 2009, the Bank for International Settlements – often described as a central bank for central banks (BIS)  – slammed the Federal Reserve for failing to rein in the shadow banking system:

How could such a huge shadow banking system emerge without provoking clear statements of official concern?

Years later, the Fed and other regulators have allowed the shadow banking system to grow even bigger.

As Reuters notes [3] today:

The system of so-called “shadow banking,” blamed by some for aggravating the global financial crisis, grew to a new high of $67 trillion globally last year, a top regulatory group said, calling for tighter control of the sector.

A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policymakers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and banking activities.


The study by the FSB said shadow banking around the world more than doubled to $62 trillion in the five years to 2007 before the crisis struck.

But the size of the total system had grown to $67 trillion in 2011 — more than the total economic output of all the countries in the study.


The United States had the largest shadow banking system, said the FSB, with assets of $23 trillion in 2011, followed by the euro area — with $22 trillion — and the United Kingdom — at $9 trillion.

The U.S. share of the global shadow banking system has declined in recent years, the FSB said, while the shares of the United Kingdom and the euro area have increased.

At the same time, authorities have relaxed rules against fraud [4]excessive leverage [5] and moral hazard [6] … three of the other main causes of the financial crisis.

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URLs in this post:

[1] Washington’s Blog: http://www.washingtonsblog.com/2012/11/shadow-banking-system-larger-than-at-the-start-of-the-financial-crisis.html

[2] noted: http://www.washingtonsblog.com/2009/08/bis-slammed-federal-reserve-and-other-central-banks-for-blowing-bubbles-and-then-using-gimmicks-and-palliatives-which-will-only-make-things-worse.html

[3] notes: http://www.cnbc.com/id/49877573

[4] fraud: http://www.washingtonsblog.com/2011/11/obama-prosecuting-fewer-financial-crimes-than-under-either-bush-presidency.html

[5] excessive leverage: http://www.washingtonsblog.com/2011/04/excessive-leverage-helped-cause-the-great-depression-and-the-current-crisis-and-government-responds-by-encouraging-more-leverage.html

[6] moral hazard: http://www.washingtonsblog.com/2012/11/www.washingtonsblog.com/2012/05/as-an-encore-to-bailing-out-the-big-banks-government-to-backstop-derivativees-clearinghouses-in-the-u-s-and-abroad.html

[7] As The Shadow Banking System Imploded In Q2, Bernanke’s Choice Has Been Made For Him: http://www.prisonplanet.com/as-the-shadow-banking-system-imploded-in-q2-bernankes-choice-has-been-made-for-him.html

[8] Economist: “As A Shadow Government, The Fed Has Mirrored The Shadow Banking System”: http://www.prisonplanet.com/economist-as-a-shadow-government-the-fed-has-mirrored-the-shadow-banking-system.html

[9] Shadow Banking Topology: http://www.prisonplanet.com/27198.html

[10] Exclusive: In Q1 Bernanke Spurred Inflation By Successfully Offsetting The Ongoing Collapse Of The Shadow Banking System: http://www.prisonplanet.com/exclusive-in-q1-bernanke-spurred-inflation-by-successfully-offsetting-the-ongoing-collapse-of-the-shadow-banking-system.html

[11] Will Adverse Regulatory Changes Cause Further Deterioration In Shadow Banking And Force The Fed’s QE Hand Again?: http://www.prisonplanet.com/will-adverse-regulatory-changes-cause-further-deterioration-in-shadow-banking-and-force-the-feds-qe-hand-again.html

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