Tags: shadow | banking | KBW | growth

KBW: Shadow Banking Returns to Prominence

Thursday, 23 May 2013 08:10 AM

By Dan Weil

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Shadow Banking, which consists of lending outside of formal banks, is back in business, and that could be a boon to the economy, say analysts at Keefe, Bruyette & Woods (KBW).

Shadow banking can include lending by hedge funds and off-balance sheet securitizations. It has now accumulated assets of $16 trillion, according to a KBW report obtained by CNBC.

That tops the $15 trillion in assets at commercial banks and dwarfs the approximately $6 trillion in corporate bonds.

Editor’s Note:
Put the World’s Top Financial Minds to Work for You


"The re-emergence of shadow banking may trouble regulators, but likely will boost near-term economic growth and expand growth opportunities in many non-bank financial service sectors," the note stated.

"The growth in non-bank financial sectors is, in part, related to the increased regulation and litigation since the financial crisis."

KBW says the return of shadow banking represents healing for the financial sector.

"The missing pieces to the story of private sector debt are financial assets outside the bank and corporate balance sheets," the KBW analysts wrote.

"This is an area we believe has been lacking in growth since the financial crisis and likely has been a factor keeping overall economic growth limited."

Federal Reserve Chairman Ben Bernanke doesn't hold as benign a view toward shadow banking. He warned in a speech earlier in May that risks remain in that domain, The Washington Post reported.

Improving oversight of shadow banking is crucial for preventing future financial shocks, Bernanke said.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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