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The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that legally provide services similar to traditional commercial banks but outside normal banking regulations.[1][2] S&P Global estimates that, at end-2022, shadow banking held about $63 trillion in financial assets in major jurisdictions around the world, representing 78% of global GDP, up from $28 trillion and 68% of global GDP in 2009.[3]
Examples of NBFIs include hedge funds, insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[4][5] The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.[6]
Former US Federal Reserve Chair Ben Bernanke provided the following definition in November 2013:
"Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions—but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper [ABCP] conduits, money market funds, markets for repurchase agreements, investment banks, and mortgage companies"[7]
Shadow banking has grown in importance to rival traditional depository banking, and was a factor in the subprime mortgage crisis of 2007–2008 and the global recession that followed.[8][9][10][2]
- ^ Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky (December 1, 2013). "Shadow Banking". FRBNY Economic Policy Review.
Shadow banking activities consist of credit, maturity, and liquidity transformation that take place without direct and explicit access to public sources of liquidity or credit backstops. These activities are conducted by specialized financial intermediaries called shadow banks, which are bound together along an intermediation chain known as the shadow banking system
{{cite journal}}: CS1 maint: multiple names: authors list (link) - ^ a b James, Scott; Quaglia, Lucia (2023). "Why are international standards not set? Explaining "weak" cases in shadow banking regulation". Journal of Public Policy. doi:10.1017/S0143814X23000417. hdl:11585/954206. ISSN 0143-814X.
- ^ Cite error: The named reference
SP63T2022was invoked but never defined (see the help page). - ^ Non-Bank Financial Institutions:A Study of Five Sectors
- ^ NZ Financial Dictionary, http://www.anz.com/edna/dictionary.asp?action=content&content=non-bank_financial_institution
- ^ "Shadow Banking Gets Bad Rap, So Treasury Wants to Erase the Term". Bloomberg.com. 2017-10-27. Archived from the original on 2018-02-05. Retrieved 2018-02-04.
- ^ Bernanke, Ben S (8 November 2013). "The Crisis as a Classic Financial Panic". At the Fourteenth Jacques Polak Annual Research Conference, Washington, D.C.: Board of Governors of the Federal Reserve System. Archived from the original on 4 March 2016. Retrieved 8 March 2016.
- ^ "Bernanke-Some Reflections on the Crisis and the Policy Response-April 2012". Archived from the original on 2013-11-11. Retrieved 2013-11-11.
- ^ Bryan Noeth & Rajdeep Sengupta (2011). "Is Shadow Banking Really Banking?". The Regional Economist, Federal Reserve Bank of St. Louis. October: 8–13. Archived from the original on 2014-02-25. Retrieved 2014-04-27.
- ^ Krugman, Paul (April 8, 2016). "Sanders Over the Edge". The New York Times. Archived from the original on August 22, 2017. Retrieved April 9, 2016.