Global Systemic Risk: What's Driving the Shadow Banking System?
16 Pages Posted: 17 Nov 2015
Date Written: July 2015
The global shadow banking system (SBS) continues to increase in size and scope at a steady pace. The Financial Stability Board estimates that in 2014, the global SBS reached 75 trillion USD, which is equivalent to 120% of the GDP of all measured jurisdictions in the world. Advanced economies have the largest SBSs, while those of emerging economies showed the most rapid growth. China’s SBS is one of the fastest growing in the world. Globally, the growth of the SBS has been driven by the tightening regulation of traditional banks. This paper discusses issues related to the shadow banking system (SBS) with a focus on Asia and in particular on China, in the context of global systemic risk. The paper highlights the importance of the growing shadow banking industry in Asia and factors that will contribute to its expansion in the immediate years ahead. The paper compares and contrasts shadow banking in the US versus that in China. It highlights the risks associated with shadow banking, including leverage risk, maturity and liquidity mismatch and regulatory arbitrage.
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