Monday, November 19, 2012

'Shadow Banking' Still Thrives, System Hits $67 Trillion

CNBC
November 18, 2012



The system of so-called "shadow banking," blamed by some for aggravating the global financial crisis, grew to a new high of $67 trillion globally last year, a top regulatory group said, calling for tighter control of the sector.

A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policymakers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and banking activities.

The FSB, a task force from the world's top 20 economies, also called for greater regulatory control of shadow banking.

"The FSB is of the view that the authorities' approach to shadow banking has to be a targeted one," the group wrote in a report, noting the current lax regulation of the sector.

"The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial stability," it said.

Officials at the European Commission in Brussels also see closer oversight of the sector as important in preventing a repeat of the financial crisis that has toppled banks over the past five years and rocked the euro zone.

The study by the FSB said shadow banking around the world more than doubled to $62 trillion in the five years to 2007 before the crisis struck.

But the size of the total system had grown to $67 trillion in 2011 — more than the total economic output of all the countries in the study.

The multitrillion-dollar activities of hedge funds and private equity companies are often cited as examples of shadow banking

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