The Financial Stability Board’s narrow measure of shadow banking was $34 trillion in 2015, an increase of 3.2 percent from 2014, according to the Global Shadow Banking Monitoring Report 2016. The report presents data from 28 jurisdictions accounting for about 80 percent of global GDP.
The FSB report describes the "shadow banking system" as "credit intermediation involving entities and activities (fully or partially) outside the regular banking system" or non-bank credit intermediation in short. Properly conducted, this intermediation provides a valuable alternative to bank funding that supports real economic activity, the report stated. However, it continued, experience from the financial crisis demonstrates the capacity for some non-bank entities and transactions to operate on a large scale in ways that create bank-like risks to financial stability, such as longer-term credit extension based on short-term funding and leverage.
Mark Carney, Chair of the FSB, said, "The enhanced and coordinated system-wide monitoring by authorities continues to improve our understanding of non-bank financial activities and risks to the financial system. This helps to inform our judgement on appropriate policy responses as we transform shadow banking into resilient market-based finance."
The main findings from the 2016 exercise are as follows:
- The activity-based, narrow measure of shadow banking was $34 trillion in 2015, increasing by 3.2 percent compared to the prior year, and equivalent to 13 percent of total financial system assets and 70 percent of GDP of these jurisdictions.
- Credit intermediation associated with collective investment vehicles (CIVs) comprised 65 percent of the narrow measure of shadow banking and has grown by around 10 percent 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 percent of the narrow measure, and grew by 2.5 percent 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 exercise also collected 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. While the data availability needs to be improved, the report acknowledged, the data collected suggested 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.
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