What is shadow banking and why does it worry regulators?
Shadow banking moves trillions with little regulation. Is it the same threat as in 2008 or an older, more global phenomenon? Data and analysis.
English · Original discussion in Spanish · Published
Shadow banking: the monster that proge up with the subprime crisis and remains unchecked
In 2008, subprime mortgages peine Pandora's box of shadow banking: a web of unregulated financial intermediaries moving trillions outside the radar. The concept is not new, as its presence in informal economies around the world shows, but its current scale –driven by deregulation and financial creativity– makes it a ticking time bomb.
Why is the debate resurfacing now?
The 2008 crisis was a preview: subprime was just the tip of the iceberg. Since then, the volume of assets managed by shadow banking has grown by 75%, according to FSB data. Yet the official narrative downplays the risks, while alternative analyses suggest that the real dirty money –the kind flowing through Iran or tax havens– is channelled through these circuits. The connection with the United Kingdom and certain political elites is no trivial matter.
Global threat or old acquaintance?
One school of thought holds that shadow banking is as old as barter itself: informal clearing systems in remote villages, credit between individuals, even war financing. Another, more alarmist view links it to geopolitical destabilisation: the injection of Iranian petrodollars into the legal system through opaque intermediaries. Both views agree that the lack of transparency makes it impossible to regulate effectively.
The question nobody answers is whether the next crisis will come from the same direction as the last one, or whether this time the collapse will be even quieter, because there are no longer any mortgages to give it away.
Related debates in the forum
In 2008, subprime mortgages peine Pandora's box of shadow banking: a web of unregulated financial intermediaries moving trillions outside the radar. The concept is not new, as its presence in informal economies around the world shows, but its current scale –driven by deregulation and financial creativity– makes it a ticking time bomb.
Why is the debate resurfacing now?
The 2008 crisis was a preview: subprime was just the tip of the iceberg. Since then, the volume of assets managed by shadow banking has grown by 75%, according to FSB data. Yet the official narrative downplays the risks, while alternative analyses suggest that the real dirty money –the kind flowing through Iran or tax havens– is channelled through these circuits. The connection with the United Kingdom and certain political elites is no trivial matter.
Global threat or old acquaintance?
One school of thought holds that shadow banking is as old as barter itself: informal clearing systems in remote villages, credit between individuals, even war financing. Another, more alarmist view links it to geopolitical destabilisation: the injection of Iranian petrodollars into the legal system through opaque intermediaries. Both views agree that the lack of transparency makes it impossible to regulate effectively.
The question nobody answers is whether the next crisis will come from the same direction as the last one, or whether this time the collapse will be even quieter, because there are no longer any mortgages to give it away.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (8 replies).
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