DBRS, Inc. (DBRS) published a commentary titled “DBRS: Out of the Shadows – Drivers of Global Growth in FSB’s Shadow Banking.”
DBRS sees significant risks stemming from continued growth in shadow banking globally. Assets are now at $52 trillion globally, up from $30 trillion in 2010 according to the FSB. Weaknesses in these nonbank FIs arising in their maturity intermediation, liquidity, leverage and credit transformation could result in runs that would exacerbate financial market stress. The U.S. has the largest concentration with 29% of global shadow banking assets. But, this is down from 48% in 2010, as other regions are growing faster. Fixed income funds, mixed funds, hedge funds and other collective investment vehicles are driving this shadow banking growth.
Summary highlights of the commentary include:
• Shadow banking is still growing. This narrow, but rapidly growing, subset of nonbanks had assets of $52 trillion in 2017, up 75% from $30 trillion in 2010.
• Since 2010, assets of nonbanks are also growing, up 61% to $185 trillion. That is 49% of the $378 trillion in total global assets in all financial institutions at the end of 2017, up significantly from 44% in 2010.
• The key driver of this growth in nonbank assets is the expansion of OFIs. These OFIs are defined as all financial institutions that are NOT central banks, banks, insurance companies, pension funds, public financial institutions, or financial auxiliaries. Assets at these OFIs grew 71% since 2010 to a record $117 trillion in 2017, or just over 30% of assets in financial institutions globally.
• By far, the largest segment of shadow banking globally is collective investment vehicles, which are subject to runs. These include fixed income funds, mixed funds, MMFs and hedge funds. Since 2010, this segment has grown by 130% to $36.7 trillion in assets. By contrast, growth in other segments has been less than $1 trillion, or even negative.
This commentary is available at www.dbrs.com.
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