The Financial Stability Board (FSB) publish the Global Shadow Banking Monitoring Report 2017 which presents the results of the FSB’s seventh annual monitoring exercise to assess global trends and risks from shadow banking activities. The 2017 monitoring exercise covers data up to end-2016 from 29 jurisdictions, which together represent over 80% of global GDP, including, for the first time, Luxembourg. Also for the first time, the Report assesses the involvement of non-bank financial entities in China in credit intermediation that may pose financial stability risks from shadow banking, such as maturity/liquidity mismatches and leverage.
The global monitoring of developments in the shadow banking system is part of the FSB’s strategy to transform shadow banking into resilient market-based finance. The monitoring exercise adopts an activity-based approach, focusing on those parts of the non-bank financial sector that perform economic functions which may give rise to financial stability risks from shadow banking.
The main findings from the 2017 monitoring exercise are as follows:
The 2017 monitoring exercise also benefited from improved data submissions by authorities to measure interconnectedness among financial sectors and to assess short-term wholesale funding trends, including repurchase agreements (repos). On an aggregated basis, both banks’ credit exposures to, and funding from, OFIs have continued to decline in 2016, and are at 2003-06 levels.
Mark Carney, Chair of the FSB and Governor of the Bank of England, said “The sustained growth in non-bank financial activity highlights the value of the FSB’s shadow banking monitoring in allowing authorities to track and understand developments. Market-based finance provides increasingly critical alternatives to bank lending in the financing of economic growth, and it is vital that resilience of the sector is maintained as it continues to evolve. A close understanding of emerging risks helps guide our judgement on appropriate policy responses, such as the FSB’s 2017 recommendations to address structural vulnerabilities from asset management activities which will be operationalised this year.”
Klaas Knot, Chair of the FSB Standing Committee on Assessment of Vulnerabilities and President of De Nederlandsche Bank, said “The monitoring exercise has made further progress in 2017 by expanding its geographical coverage and deepening the analysis of associated financial stability risks, reflecting improved data submissions. Given the evolving nature of shadow banking into new forms and across borders, the FSB continues to work on further improvements to data availability and risk analysis so that new sources of systemic risk can be identified in a forward-looking manner.”
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