Basel: Shadow Banking Continues Expanding in 2017

Bank-like activity by nonbanks that poses financial stability risks grew by $4.4 trillion, or 8.5 percent, in 2017, according to the Basel, Switzerland-based Financial Stability Board today. The measure, which represents 14 percent of global financial assets, comprises collective investment vehicles, nonbank lenders dependent on short-term funding and market intermediaries depending on short-term or secured funding.

A subset of all nonbank financial activity, the measure is designed to replace the term “shadow banking,” which the FSB is replacing with “nonbank financial intermediation” in its multiyear project monitoring risks posed by nonbanks. In 2017, depository institutions’ share of global financial assets declined to 39 percent — down from 45 percent in 2008.

Federal Reserve Vice Chairman for Supervision Randal Quarles, who chairs the FSB, noted that when shadow banking “involves maturity or liquidity transformation, or leverage like banks, it may have effects on financial stability both directly and through its linkages with the banking system. The FSB’s monitoring exercise draws on the strength of the FSB’s broad-based and diverse membership to facilitate the sharing of information about these developments among authorities and helps to identify potential sources of financial stability risk.”