Chinese investors poured funds into trust products last year, boosting such assets to a record $1.8 TRILLION. This comes less than a month after China averted its first trust default in at least a decade. So does shadow banking, particularly in China and India, pose a threat to the global financial system? Rosalind Chin reports.
Shadow banking institutions typically are not required to have banking licenses and don’t take deposits like a depository bank — they’re not subject to the same regulations. Complex legal entities comprising the system include hedge funds, structured investment vehicles (SIV), special purpose entity conduits (SPE), money market funds, repurchase agreement (repo) markets, loan sharks, pawn shops and other non-bank financial institutions.
“Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions–but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper (ABCP) conduits, money market mutual funds, markets for repurchase agreements (repos), investment banks, and mortgage companies.”
— Federal Reserve Chair Ben Bernanke, April 2012
FSB — Financial Stability Board
A study of the 11 largest national shadow banking systems
$50 trillion in 2007
$47 trillion in 2008
$51 trillion in 2011
$67 trillion in 2012
The Financial Stability Board (FSB) is an international body that monitors the global financial system and makes recommendations about the global financial system. FSB was established after the 2009 G-20 London summit in April 2009 as a successor to the Financial Stability Forum. The FSB includes all G-20 major economies, FSF members, and the European Commission, and is based in Basel, Switzerland.
G-20 Major Economies
GROUP 1
Australia
Canada
Saudi Arabia
United States
GROUP 2
India
Russia
South Africa
Turkey
GROUP 3
Argentina
Brazil
Mexico
GROUP 4
France
Germany
Italy
United Kingdom
GROUP 5
China
Indonesia
Japan
South Korea
European Union represented by the President of the European Council and by the European Central Bank
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