In Bloomberg Markets: Balance of Power, host David Gura focuses on the politics and policies being shaped by President Trump's administration.
Runtime: 60 minutes
Bloomberg Markets: Balance of Power - Shadow banking system - Netflix
The shadow banking system is a term for the collection of non-bank financial intermediaries that provide services similar to traditional commercial banks but outside normal banking regulations. The phrase “shadow banking” contains the pejorative connotation of back alley loan sharks. Many in the financial services industry find this phrase offensive and prefer the euphemism “market-based finance”. This definition was first put forward by PIMCO (Pacific Investment Management Company) executive director Paul McCulley at FED (Federal Reserve System) annual meeting in 2007. Former US Federal Reserve Chair Ben Bernanke provided the following definition in November 2013:
“Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions — but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper [ABCP] conduits, money market funds, markets for repurchase agreements, investment banks, and mortgage companies”
Shadow banking has grown in importance to rival traditional depository banking, and was a primary factor in the subprime mortgage crisis of 2007-2008 and the global recession that followed.
Bloomberg Markets: Balance of Power - Examples - Netflix
During 1998, the highly leveraged and unregulated hedge fund Long-Term Capital Management failed and was bailed out by several major banks at the request of the government, which was concerned about possible damage to the broader financial system. Structured investment vehicles (SIVs) first came to public attention at the time of the Enron scandal. Since then, their use has become widespread in the financial world. In the years leading up to the crisis, the top four U.S. depository banks moved an estimated $5.2 trillion in assets and liabilities off their balance sheets into special purpose vehicles (SPEs) or similar entities. This enabled them to bypass regulatory requirements for minimum capital adequacy ratios, thereby increasing leverage and profits during the boom but increasing losses during the crisis. New accounting guidance was planned to require them to put some of these assets back onto their books during 2009, with the effect of reducing their capital ratios. One news agency estimated the amount of assets to be transferred at between $500 billion and $1 trillion. This transfer was considered as part of the stress tests performed by the government during 2009.
Bloomberg Markets: Balance of Power - References - Netflix