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The Big Shadow Banking Thread - Shadow Banking System A Growing Risk To Financial Stability – Imf

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Growth in the world’s $70tn (£43tn) shadow banking system is a risk to financial stability and monitoring of the sector is inadequate, the International Monetary Fund has warned.

The Washington-based fund said in its twice-yearly global financial stability report that lending outside the regulated banks was increasing in the post-crisis world, partly because of greater banking regulation.

“The global financial crisis revealed that, absent adequate regulation, shadow banking can put the stability of the financial system at risk in several ways.

“Since the crisis, the ongoing tightening of bank regulations may be encouraging a shift of traditional banking activities into the shadows.”

Britain’s shadow banking sector is more than twice the size of any other economy’s as a share of GDP, according to the IMF.


Chapter 2: Shadow Banking Around the Globe: How Large, and How Risky?
Chapter 2 examines the growth of shadow banking around the globe, assessing risks and discussing regulatory responses. Although shadow banking takes vastly different forms within and across countries, some of its key drivers tend to be common to all: search for yield, regulatory circumvention, and demand by institutional investors. The contribution of shadow banks to systemic risks in the financial system is much larger in the United States than in Europe. The chapter calls for a more encompassing (macroprudential) approach to regulation and for enhanced data provision.

Chapter 3: Risk Taking By Banks: The Role of Governance and Executive Pay
Chapter 3 discusses how conflicts of interest between bank managers, shareholders, and debt holders can lead to excessive bank risk taking from society’s point of view. It finds that banks with boards of directors independent from management take less risk. There is no clear relation between bank risk and the level of executive compensation, but a better alignment of bankers’ pay with long-term outcomes is associated with less risk.

Well I'm sure ZIRP isn't increasing the risks being taken in the search for profits...

Edited by interestrateripoff

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China's shadow banking sector, a rapidly growing but opaque part of the nation's financial system, brings benefits, costs and risks to the world's second-largest economy, according to an article on the International Monetary Fund's (IMF) IMFdirect website.

China's shadow banking offers a valuable borrowing alternative for companies but also increases risk in the country's financial system, wrote Stephen Barnett, division chief in the Asia and Pacific Department of theIMF, and Shaun Roache, the IMF's resident representative in Hong Kong Special Administrative Region, authors of What's Lurking in the Shadows of China's Banks?

The problem is that it's hard to gauge how much added risk shadow banking poses in China due to the hazy and sometimes complicated nature of the activities found in the sector, said Barnett and Roache.

Shadow banking or off-balance sheet and nonbank financial intermediation, as Barnett and Roache call it, has grown quickly in China. Barnett and Roache note that shadow banking has more than tripled since 2008 and also has "accounted for half of the increase in overall credit to the economy or total social financing - even more than bank loans".

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It was shadow banking activity that was bailed out 2007/8, it continued to be so right up till today, but we are told it was all fixed.

Now we are told it is a big risk, it was never fixed, and the ground is being laid for more excuses to bail them.

This happens always before a large war...war consumes the unemployed, it gets industry going, it eats up capital and creates piles of debt.

Even War, this time round, isnt going to save us.

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