All articles tagged with #shadow banks
US banks have loaned over $1 trillion to non-bank financial firms, known as shadow banks, according to Federal Reserve data, raising concerns among regulators about potential risks to the financial system. This amount has steadily risen from about $894 billion a year earlier, highlighting the growing influence of non-deposit-taking financial companies such as fintechs and private credit investors.
US lenders' debt to shadow banks has surpassed $1 trillion, raising concerns about the potential risks to the financial system. This trend highlights the growing reliance of traditional banks on non-bank financial institutions for funding, which could pose challenges during times of market stress.
China's property crisis is causing alarm as one of the country's largest shadow banks, Zhongzhi Enterprise Group, and its trust banking arm, Zhongrong, have missed payments to investors, raising concerns of a potential collapse. These shadow banks, which offer lending and investment services without the same regulations as conventional banks, have played a significant role in China's construction boom by extending credit to property developers. The situation highlights the risks associated with high-yield investments and the moral hazard created by the government's history of bailing out indebted financial firms. Beijing faces a dilemma of whether to intervene and risk undermining the message that risky behavior has consequences or let the fallout impact social stability.
The European Central Bank (ECB) has warned that the eurozone's top banks could be hit if their financial clients, such as funds, insurers and clearing houses, withdrew their deposits or otherwise ran into trouble. The biggest risk identified was that shadow banks withdrew their funds from banks, such as deposits and repurchase agreements. These account for 13% of all traditional banks' liabilities -- or more for larger banks.
The recent banking turmoil may be just the tip of the iceberg as the collapse of Silicon Valley Bank was a symptom of broader forces at work in the financial system and the economy. The growth of 'shadow banks' has exposed them to risks from higher interest rates, similar to traditional banks. The question now is whether the banking turmoil will spread beyond the banks.