Warning of new credit crisis with growth of “Shadow Banking”
Noted investment banker Jeremy Josse, a veteren investor who specializes in financial institutions has written a new book called: “Dinosaur Derivatives and Other Trades” where he discusses, among other things: “Shadow Banking.”
Shadow Banking is defined by Investopedia as:
“A blanket term to describe financial activities that take place among non-bank financial institutions outside the scope of federal regulators. These include investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds and payday lenders, all of which are a significant and growing source of credit in the economy.”
“Despite the higher level of scrutiny of shadow banking institutions in the wake of the financial crisis, the sector has grown significantly, with more than $25 trillion in funds flowing through the system in 2015. Most of the activity centers around the creation of collateralized loans and repurchase agreements used for short-term lending between nonbank institutions and broker-dealers.”
Jeremy Joss was a guest on CNBC’s “Trading Nation” with Brian Sullivan today where he talked about Shadow Banking, and how it poses a substantial risk to investors in the U.S. and around the world, and says “as technology has enabled smaller companies to perform more functions previously relegated to large banks, and as regulations on large financial operators have constrained their operations, shadow banking has grown by about 25% since the credit crisis.”
Federal Reserve Vice Chair Stanley Fischer said just last week that shadow banking is not adequately handled in the U.S.
“The big goals of the reforms and regulation that took place in Dodd-Frank have been achieved in certain areas of the banking sector, and I worry a little bit about the fact that we in the United States do not have very good mechanisms for dealing with the non-bank sector, the shadow banking system.” -Stanley Fischer
Watch more below.
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