Financial stability board shadow banking
After the financial crisis hit in 2008, consumers that needed loans were met with banks hesitant to lend. As a result, “non-bank intermediaries,” or shadow bankers, filled the void, providing loans and mortgages without the regulations of the traditional banking industry. While providing the needed financial services, the regulations of the shadow banking industry went unnoticed by central banks, which were instead concentrating on bank capital and the dying euro. But now, regulators may be turning their attention onto the once-flourishing non-banking industry.
According to Reuters, Mark Carney, head of the Financial Stability Board, told the World Economic Forum that among the financial regulations made in the next two years, the shadow banking industry – the “forgotten” industry will be included.
The industry, which includes “hedge funds, private capital and venture funds,” may be seeing major reforms, especially since some economists have stated that they believe the crisis was worsened by the booming of the shadow banking industry, which, last year, was found to be worth $67 trillion globally – more than three times what it was worth 10 years ago.
“Shadow banking, over-the-counter derivatives, these are the areas that absolutely amplified the last crisis and will do so again unless we complete our agenda,” Carney said at the Forum held last week.
In the U.S., non-bank lenders have included retailers such as Home Depot and Sam’s Club, offering loans and even mortgages when consumers weren’t able to secure one from a traditional lender, and like the European industry, also grew tremendously when the crisis hit. Like European reforms, the global shadow banking industry could see similar changes in the future, and lenders may be increasing their reliance on risk assessment tools to prepare for potential regulations.