So-called “shadow banking” is continuing to grow and now accounts for a record share of the global financial system, according to the latest data from the Financial Stability Board (FSB).
The FSB’s latest annual monitoring exercise finds that its narrow measure of “non-bank financial intermediation” grew by 8.5% in 2017 to US$51.6 trillion, and now represents 14% of total global financial assets. Collective investment vehicles such as hedge funds, which represent over two-thirds of this activity, grew by 9.1% during the year, it notes.
Other shadow banking activity, such as non-banks that engage in lending that’s dependent on short-term funding, grew by 6%; intermediaries, such as broker dealers that depend on short-term funding, grew by 5%; and, securitization-based credit intermediation increased by 9% in 2017, the FSB also reports.
Additionally, the FSB says that its wider measure of shadow banking, which includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries, grew by 7.6% to US$116.6 trillion. This now amounts to 30.5% of total global financial assets, and is growing faster than the assets of traditional banks, insurers and pension funds.
“Non-banks play a growing role in the financial system, and their share of the financial system is the largest on record,” said Klaas Knot, chair of the FSB standing committee on assessment of vulnerabilities. “They are becoming important players in areas where banks traditionally have played dominant roles.”
Amid this continued growth in shadow banking, the FSB is calling for continued monitoring for possible systemic risks. “Authorities need to remain vigilant in addressing financial stability risks that emerge as a result of non-bank financing through enhanced data collection, improved risk analysis and implementing appropriate policy measures, including the FSB’s policy recommendations for addressing structural vulnerabilities from asset management activities,” Knot added.