Shadow Banking System according to FSB

November 28, 2016

 

Being larger than the world economy, it poses systemic risks to financial stability. Its name, “Shadow banking”, conveys a sense of murkiness that encompasses risky investment products. The common denominator is that these products practices flourish outside the regular banking system and often beyond the reach of regulators. The most devastating runs of the 2008 financial crisis were not on bank deposits –as happened during the Great Depression – but on shadow banks such as Lehman Brothers (a broker-dealer) and shadow banking instruments such as money market funds. Shadow banking proliferates for a reason: Unconstrained by the regulatory shackles of banking, it gets money to where it’s needed. Thus, the point is controlling the dangers when and where it must do.

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