Shadow bank

from Wikipedia, the free encyclopedia

A shade bank ( English shadow bank is) a financial company , the outside of the regular banking system under the intermediation operates. Shadow banking ( English shadow banking , parallel banking , market-based finance ) includes not only companies but also activities such as securitization transactions and securities financing transactions.

General

The compound shadow bank explains graphically that the activities of shadow banks largely evade government regulation and statistical recording. Andreas Dombret considers the term to be unfortunate because it also has negative connotations due to similar terms such as shadow economy and shadow debt with negative connotations. Former President of the Federal Reserve Board Ben Bernanke defined shadow banks neutrally in April 2014: "Shadow banks consist of a diverse range of institutions and markets that take on traditional banking functions overall."

species

According to the Deutsche Bundesbank , shadow banks include the following types of companies:

With around two thirds of the financial assets, the investment fund sector is the largest shadow banking sector in Germany, while money market funds form the smallest sector with around 0.15% market share .

history

Shadow banks emerged in the United States, where they operated outside the supervision of the Securities and Exchange Commission (SEC) and the United States' Securities Act without any government intervention. One of the first shadow banks was the Pioneer Fund , founded in October 1928 - and still in existence today - which did not invest in any companies that made weapons, alcohol or tobacco. The mortgage bank Fannie Mae was founded in 1938, followed by Freddie Mac as a competitor in 1970 . At that time there were also the first money market funds. In September 1998 the American hedge fund Long-Term Capital Management (LTCM) got into a threatening crisis as a result of losses running into billions. Because LTCM had borrowed large sums of money from banks, the repayment of which was questionable, the New York National Federal Reserve Bank organized a rescue operation.

Since the subprime crisis , shadow banking has developed into a major financial concept in the US, offering an opportunity to expand credit outside the banking system. The term shadow bank, coined by Paul McCulley ( Pimco ) at the beginning of the financial crisis from 2007 onwards in August 2007, illustrates the character of a bank on the one hand, and the problematic aspects of a non-integrated system that operates apart from state supervision on the other. The increase in shadow banking is often seen as a result of the stricter regulation of credit institutions that began to intensify worldwide from 2007 onwards.

After application of the G20 summit in November 2010 in Seoul, placed Financial Stability Board (FSB) ( English for financial stability supervision ) on 27 October 2011, a report on the strengthening and regulation of the shadow banking sector before. In this report, the FSB defines the shadow banking system as a “system of credit intermediation involving companies and activities outside the regular banking system.” For 2010, the FSB estimated the volume of the global shadow banking system at roughly EUR 46 trillion , compared with 2002 Was 21 trillion euros. This corresponds to 25-30% of the entire financial system and half of all bank assets. In the United States, the proportion is higher, estimated to be between 35% and 40%. The report identified systemic risks and a tendency to shift risks to economies with less regulatory requirements (regulatory arbitrage ). From this, the FSB derived recommendations for regulating the system. The development has been reported annually since 2012. A further increase to 67 trillion US dollars was registered by 2011 , which corresponds to a quarter of the total turnover in the global capital market. According to estimates by the FSB, the percentage of assets held by non-bank financial intermediaries based in Europe increased sharply between 2005 and 2010 in the global volume of shadow banking, while the percentage of assets located in the US decreased. The Commission organized a conference on shadow banking on April 27, 2012 in Brussels. After the consultation on the pre-legislative Green Paper in March 2012, the EU Commission adopted a communication on September 4, 2013 in which it presented its roadmap to limit risks, particularly those of a systemic nature, in unregulated or less regulated areas of the financial system. In November 2012, the European Parliament followed suit with a resolution calling on the Commission to act. At the end of January 2014, the EU Commission presented a proposal on shadow banks in connection with the regulation of financial risks. In it she proposes a registration requirement for securities lending transactions in order to create transparency at this interface between "normal" banks and shadow banks. This is intended to facilitate the risk assessment of the papers and give customers access to essential information about the transactions of the investment funds involved.

In January 2016, in a report on shadow banks in Germany, the scientific service of the Bundestag recorded an increase in the volume from the beginning of 1999 to the second quarter of 2015 from nominally more than three times this to around 2.6 trillion euros due to increased shadow banking activities and low assets in the Banking sector ("deleveraging").

Activities and tools

Shadow banks perform important functions in the financial system. They represent an additional source of finance and offer investors alternatives to bank deposits . They harbor risks for long-term financial stability. The Commission's approach to shadow banking is to enable transparent and resilient market-based lending while addressing material risks. The aim is to ensure that the benefits of increasing the resilience of certain actors and markets are not diminished by shifting financial risks to less regulated sectors. Regulatory arbitrage opportunities would severely undermine the impact of the reforms.

The financial management of shadow banks uses strategies, financial instruments and financial products like commercial banks. That is why the shadow banking strategy consists of speculation , arbitrage or hedging, depending on the market situation . They are market participants in the money and capital markets and are connected there and outside through interaction with commercial banks. Typical players in the shadow banking system are money market and hedge funds as well as private equity funds ; Formally, they are not credit institutions , even if they have a lot in common with investment banks in terms of function. These non-banks can carry out bank-like business, for example granting credit. For example, a money market fund in short-term may debentures of companies to invest. A company sells securities from its portfolio and buys them train to train with a forward contract back, it receives for the duration of this repo in fact a secured loan. Such transactions expand the financing options and thus represent a way of reducing companies' dependence on banks.

In the monthly report of March 2014, the Deutsche Bundesbank explained the shadow banking system and how it differs from commercial banks. In contrast to commercial banks , they do not create deposit money . They lack direct access to central bank liquidity . Therefore, they are more exposed to short-term liquidity fluctuations. Also, unlike deposits in commercial banks , liabilities of shadow banks are not protected to the same extent by the state deposit insurance . In addition, the regulation of shadow banks is far less developed than for commercial banks, although there are relevant country-specific and supranational requirements for individual actors and activities and these are being further developed. The Bundesbank emphasizes the close ties between shadow banks and commercial banks. Commercial banks buy bonds issued by special purpose vehicles, grant lines of credit to actors in the shadow banking system or are connected to actors in the shadow banking system through their own refinancing , in particular money market funds and other institutional investors.

An analysis by the Office of Financial Research at the US Treasury Department in 2014 came to the conclusion that in the liquidity-driven financial situation, very few, very large institutional market participants with excellent information structures are forced to invest large amounts of very liquid funds risk-free. At the end of 2013, they together held around $ 6 trillion. For structural reasons, these actors have no access to central bank money of types M0, M1, M2 . They are forced to invest the funds in the form of repos in the shadow banking sector. You are entering a market in which you will always be faced with a risk-driven investor. The authors see this as a major risk for financial market instability.

In June 2014, the President of the Federal Financial Supervisory Authority (BaFin), Elke König , emphasized that in recent times banks have sold or outsourced large stocks of risk paper to shadow banks. That calls for stronger regulation of the shadow banks, "because the risk does not simply disappear, but is only somewhere else, namely where we as supervisors cannot do anything."

In a report by the IMF in autumn 2014, the head of the International Monetary Fund (IMF), Christine Lagarde , warned of the danger posed to the global economy by the ever-growing, largely unregulated shadow banking sector. Presumably, assets and liabilities worth over 70 trillion US dollars are now managed there (over 55 trillion euros by comparison). In the US, the area is twice as large as the rest of the banking sector and in Europe it accounts for a good half. In China, the balance sheet total of the shadow banks probably corresponds to more than a third of the Chinese economic output. Thus shadow banks provided an opaque black box is on a massive scale. According to a report of the time from the start in February 2015 now half came in the US of all loans of shadow banks.

Risks

The financial crisis from 2007 onwards demonstrated how risks to the stability of the entire financial system can arise outside the banking system. Problems with shadow banking activities such as the securitization of loans contributed to this financial crisis . On the other hand, there were imbalances among those involved in the shadow banking system, above all money market funds. In addition, their connection to systemically important banks is a major risk factor for the global financial system. Interdependencies between banks and institutions outside the regulatory framework of banking supervision can transfer risks - in direct form (e.g. through credit and refinancing relationships or liability mechanisms and guarantees ) or indirectly through joint counterparties or investments in assets of the same kind. In Germany, the share of the shadow banking sector increased the assets of the entire financial sector from January 1999 to the second quarter of 2015 from 9% to 18%.

In March 2012, the EU Commission categorized the risks of shadow banking as follows:

  • For deposits similar financing structures it can lead to massive Withdrawals (in banking bank run are called): shadow banks are exposed as being subject to banks without comparable, due to regulation and -saufsicht constraints and laws similar financial risks.
  • Accumulation of a high level of hidden debt : the activities of shadow banks can be financed to a large extent by outside capital ( leverage ratio ), whereby loan collateral is circulated several times without being subject to the limits imposed by regulation and supervision.
  • Regulatory circumvention and regulatory arbitrage: Shadow banking can be misused to circumvent the regulation or oversight that regular banks are subject to by breaking traditional credit intermediation into legally independent but related legal structures.
  • Disordered bankruptcies affecting the banking system: Any bankruptcy of a shadow bank can have enormous contagion and spillover effects . In crises or in extremely uncertain framework conditions, the risks assumed by shadow banks can easily be transferred to the banking sector.

The diverse interdependence (heterogeneity) of the shadow banking system makes it difficult to record it statistically, but does not make it impossible. In the case of shadow banks, the Bundesbank focuses on the aggregate of other financial intermediaries including money market funds (SFIs) and determined that - based on total assets - in the 3rd quarter of 2013 a total of 32% of SFIs were based in Luxembourg and 18% in the Netherlands , in Germany was home to 10%. Investment funds account for the largest share in Luxembourg (35%); almost all money market fund assets are in France (39%), Ireland (33%) and Luxembourg (24%).

abuse

According to the article on money laundering , shadow banks are also used for money laundering.

International

These are bank-like transactions that are beyond banking regulation. In the United States, public mortgage lenders Fannie Mae and Freddie Mac are also considered shadow banks. This also makes the shadow banking system almost twice as large as the regular banking system. The assets of the shadow banking system there amount to around 175%, in Germany, however, only around 25% of those of regular banks. These dimensions are of great importance, since a crisis in the shadow banking system of the USA can lead to contagion effects in the commercial banking system due to strong links with the commercial banking system. In 2015, the credit volume of Chinese shadow banks was $ 6.5 trillion, according to the McKinsey Global Institute (MGI). They represent around 30% of all Chinese debt.

Because shadow banks can very easily emanate systemic risks, supervisory authorities require them to be monitored. The work of the FSB showed that the disorderly insolvency of a shadow bank can be linked to systemic risks both directly and indirectly via its link (s) with regular banks. The FSB emphasized that - as long as such transactions and companies are subject to less regulation and supervision than the rest of the financial sector - increased banking regulation can drive large parts of banking business from the traditional banking system to the shadow banking system. It should be noted that the financial economy now dominates the real economy . While the global real economy was quantitatively 2: 1 superior to the financial sector around 1980, today it is clearly inferior at 1: 3.5. Since shadow banking is part of the financial industry, it strengthens its dominance, so that the risk of any turbulence in the financial system being carried over to the real economy can increase further.

Individual evidence

  1. ↑ Süddeutsche Zeitung of September 16, 2013, Andreas Dombret: Summit gleanings: shadow banks and more
  2. ↑ Ben Bernanke: "Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions ...", April 2014
  3. ↑ Deutsche Bundesbank, Financial Stability Report 2015 , November 2015, Chart 1.4.1, p. 59
  4. ↑ Florian Pressler, The First World Economic Crisis , 2013, o. P.
  5. ↑ Banking regulation leaves shadow banks in the dark , in: FAZ of December 13, 2013, p. 23
  6. ↑ Qingmin Yan / Jianhua Li, Regulating China's Shadow Banks , 2016, p. 1
  7. ↑ Jochen Felsenheimer, Credit Markets in Change , 2011, p. 388
  8. ↑ Manfred Weber, This is how the money market works , 2013, p. 28
  9. ↑ FSB: Shadow Banking: Scoping the Issues (PDF file; 186 kB)
  10. ↑ a b BaFin: G20: Better monitoring of shadow banks , in: BaFin-Journal, edition 11/12 2011, pp. 16–20
  11. ↑ Spiegel Online: Shadow banks are spreading in the financial system , November 19, 2012
  12. ↑ Green Paper EU Commission, Shadow Banking , March 2012, p. 5 ( Memento from March 5, 2016 in the Internet Archive )
  13. ↑ europarl.europa.eu: European Parliament resolution on shadow banking , November 20, 2012
  14. ↑ European Commission, europa.eu: Reporting and transparency of securities financing transactions - frequently asked questions - MEMO / 14/64 29/01/2014
  15. ↑ Scientific service of the Bundestag: WD 4 - 006/16 Shadow banking activities in Germany , January 21, 2016
  16. ↑ Green Paper EU Commission, Shadow Banking , March 2012, p. 2
  17. ^ International Monetary Fund , Laura E. Kodres, What Is Shadow Banking? Many financial institutions that act like banks are not supervised like banks , Hauspostille, June 2013 edition
  18. ↑ Süddeutsche Zeitung of September 16, 2013, Andreas Dombret, summit review: shadow banks and more
  19. ↑ Deutsche Bundesbank, The shadow banking system in the euro area: Presentation and monetary policy implications , Monthly Report March 2014, p. 17
  20. ↑ Deutsche Bundesbank, The shadow banking system in the euro area: Presentation and monetary policy implications , Monthly Report March 2014, p. 17
  21. ^ Deutsche Bundesbank, The shadow banking system in the euro area: Presentation and monetary policy implications , Monthly Report March 2014, p. 20
  22. ↑ Zoltan Poznar, Shadow Banking: The Money View in July OFR Working Paper, 2, 2014
  23. ↑ spiegel.de: Billion risks: BaFin boss calls for more control of shadow banks . 2nd June 2014
  24. ↑ Konrad Putzier, zeit.de: The rapid rise of shadow banks , February 5, 2015
  25. ↑ Deutsche Bundesbank, Financial Stability Report 2015 , November 2015, p. 58
  26. ↑ Deutsche Bundesbank, Financial Stability Report 2015 , November 2015, p. 59
  27. ↑ Green Paper EU Commission, Shadow Banking , March 2012, p. 5 ff.
  28. ^ Deutsche Bundesbank, The shadow banking system in the euro area: Presentation and monetary policy implications , Monthly Report March 2014, p. 22
  29. ↑ Gerhard Merk , Finanzlexikon , University of Siegen, 1995, p. 1605 (10 MB; PDF)
  30. ^ Crisis mood in the Middle Kingdom
  31. ↑ Green Paper EU Commission, Shadow Banking , March 2012, p. 2