Finally here is an easy to follow, comprehensive, well researched, and unbiased paper from FRBNY (Tobias Adrian and Adam Ashcraft) on the so-called shadow banking (many thanks once again to Kostas Kalevras for pointing it out). A few comments:
I. This chart from the paper shows the breakdown of the “traditional” vs. the “shadow” banking market sizes. It is important to point out the precise definition of traditional banking sources of funds.
Traditional Intermediation [sources of funding] refers to net interbank liabilities [banks borrowing from each other] plus checkable and savings deposits of depository institutions plus reserves of life insurance companies and pensions plus [unsecuritized] corporate debt.
Note that a big chunk of shadow banking is comprised of the GSE (Fannie Mae, Freddie Mac), something the mainstream media often misses. Also this does not include government sponsored student loans, which many would classify as shadow banking (and could become a serious issue at some point).
II. The authors may have overemphasized the complexity of the securitization process with the 7 steps (chart below). Yes, in the few years leading up to the financial crisis, with CDO squared, etc., one could potentially count this many steps. But those days are over. Modern securitization usually involves only the first three steps. For example, in CLOs one has the following:
- Banks lend to corporations and syndicate those loans.
- The CLO manager uses a “warehouse line” to purchase some large portion of the loans needed for the CLO.
- A permanent entity is set up, which issues the liabilities (tranches) and…………………………………….
full article at source: http://soberlook.com/
- China’s ‘shadow banks’ near collapse after initial rapid growth (wantchinatimes.com)
- Citigroup Boosts Shadow Banking as Pandit Pleads for Regulation – Bloomberg (bloomberg.com)
- Ireland & the Shadow Banking System: Audio & Slides from 18th Oct 12 Dublin Talk (irishleftreview.org)
- “Misunderstanding Financial Crises”, a Q&A with Gary Gorton (ftalphaville.ft.com)
- ‘Shadow Banking’ In China (zerohedge.com)
- Anthony Hilton: Shadow bankers have a shock in store for them (standard.co.uk)
- How to Reduce the Risks Lurking in Shadow Banking: C.D. Howe Institute (canadafreepress.com)