Shadow banking grows to US$67tr
Industry has grown by US$41 trillion since 2002, with regulators worrying about systemic risks from such off-balance sheet transactions
The shadow banking industry has grown to about US$67 trillion, US$6 trillion bigger than previously thought, leading global regulators to seek more oversight of financial transactions outside their traditional jurisdiction.
The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off-balance sheet investment vehicles, "can create systemic risks" and "amplify market reactions when market liquidity is scarce", the Financial Stability Board (FSB) said in a report, which used more data than last year's probe into the sector.
"Appropriate monitoring and regulatory frameworks for the shadow banking system [need] to be in place to mitigate the build-up of risks," the FSB said in the report.
While watchdogs have reined in excessive risk-taking by banks in the wake of the collapse of Lehman Brothers in 2008, they are concerned that lenders might use shadow banking to evade the clampdown. Michel Barnier, the European Union's financial services chief, plans to target money market funds in a first wave of rules for shadow banks next year.
The FSB, a global financial policy group of regulators and central bankers, found that shadow banking grew by US$41 trillion between 2002 and last year. The share of activity based in the United States declined from 44 per cent in 2005 to 35 per cent last year, as much of it moved to Britain and the rest of Europe.
Supervisors consider shadow banking activities to be those that allow banks to carry out business off their balance sheets, as well as those that allow investors to bypass lenders and the functions they traditionally fulfil on the markets.