The world’s shadow banking sector continues to grow, according to the latest data from the Financial Stability Board (FSB).
The FSB estimates that the assets of non-bank financial intermediaries (excluding insurance companies, pension funds and public financial institutions) grew by $5 trillion in 2012 to reach $71 trillion. These non-bank firms represent about 24% of total financial assets, and are equivalent to about half of banking system assets, and 117% of GDP, the FSB noted.
Non-bank financial intermediaries grew by 8.1% in 2012, up from 0.6% in 2011, the FSB said; citing “a general increase in valuation of global financial markets” as one of the key reasons for this growth. Meanwhile, bank assets were relatively stable, it adds.
The shadow banking sector forms a larger proportion of the financial systems in advanced economies, compared with emerging markets, it notes. However, emerging markets have experienced strong growth, albeit from a low base, it says.
Earlier this year, the FSB published policy recommendations to strengthen oversight and regulation of shadow banking. Its objective is to address bank-like risks to financial stability emerging outside the regular banking system, without inhibiting sustainable non-bank financing models that do not pose these sorts of risks.
“Monitoring the shadow banking system is an essential part of our work to strengthen the oversight and regulation of this sector. Our aim is for shadow banking to deliver transparent and resilient market-based financing, thus diversifying the sources of financing of our economies in a sustainable way,” said Mark Carney, chairman of the FSB.
“The FSB will continue to improve its global monitoring exercise to identify the financial stability risks posed by shadow banking as the result of its use of leverage, maturity and liquidity transformation,” he added.
“Improving bank regulation is not enough to fully address the weaknesses of the financial system revealed by the crisis. The shadow banking system continues to transform and innovate. This annual monitoring exercise aims to narrow in on new risks to the financial system, and inform decisions on whether further measures are needed,” said Agustín Carstens, chairman of the FSB standing committee on assessment of vulnerabilities.