Shadow banks grow despite fears of risk to market stability

 
Tim Wallace
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THE SHADOW banking sector expanded strongly last year despite regulators’ concerns about the risks it may pose to the rest of the financial system, the Financial Stability Board (FSB) said yesterday.

Its study of the sector, which includes a range of funds with some bank-like characteristics, found non-bank financial intermediation grew by $5 trillion (£3.1 trillion) in 2012 to $71 trillion.

The US has the biggest shadow banking sector, with assets of $26 trillion, followed by the Eurozone at $22 trillion and the UK with $9 trillion.

As the shadow banks, which include pension funds, hold a range of bank assets, the FSB said they should be monitored closely to understand the build up of risks.

“These connections create a contagion channel through which stress in one sector can be transmitted to the other, and can be amplified back through feedback loops,” the report said.