Tag Archives: shadow banking

Hillary Clinton Talks Tough on Shadow Banking, But Blackstone Is Celebrating at the DNC

July 28 2016, 10:38 a.m.

And yes, Wall Street and big corporation donors are crawling around at the DNC event. Money needs to be out of politics for good. And a definite NO for Hamilton “Tony” James, Blackstone COO, for U.S. Treasury head if there is a Clinton Administration!!! Great reporting, David!

Blackstone, the giant Wall Street private equity firm, will hold an invitation-only reception before the final night of the Democratic National Convention in Philadelphia. The event, at the swanky Barnes Foundation art museum, includes the usual perks for attendees: free food, drink, and complimentary shuttle buses to the final night of the convention.

What’s unusual is that the host is precisely the kind of “shadow banker” that Hillary Clinton has singled out as needing more regulation in her rhetoric about getting tough on Wall Street.

But Blackstone President and Chief Operating Officer Hamilton “Tony” James doesn’t seem the least bit intimidated.

James has been a stalwart supporter of Barack Obama, holding fundraisers for him at his home, even while other Wall Street titans criticized him — in fact the co-founder of James’s own company, Blackstone CEO Stephen Schwarzman, once likened Obama’s push to increase taxes on private-equity firms to a “war,” saying: “It’s like when Hitler invaded Poland in 1939.”

Last December, James hosted a high-dollar fundraiser for Hillary Clinton that featured Warren Buffett. He’s made six-figure donations to the Center for American Progress, known as Clinton’s White House in exile, and sits on CAP’s Board of Trustees. And he has made no secret of wanting to hold a high-level position in a future Democratic administration, perhaps even Treasury Secretary.

Read on.

The Rise of Shadow Banks and the Repeal of the Glass-Steagall Act

Truthout:

The US accounted for the largest shadow-banking sector, with $14.2 trillion in 2014.

The Increasing Size of Shadow Banking in the US

Investment banks, structured investment vehicles, hedge funds, non-bank financial institutions, money market funds, mutual funds and exchange-traded funds are all a part of the shadow banking system and are not required to maintain any reserves or emergency capital. “No regulations” in a “regulated environment” could be the biggest worry of the shadow banking system. Often beyond the control of regulators and monetary policy, shadow-banking activities can resort to risky lending. According to the New York Fed, shadow banks have “increased the fragility of the entire financial system.” While the total of non-bank financial intermediaries decreased immediately after the 2008 financial crisis, the number of shadow banks have picked up in recent years.

The vulnerabilities of the traditional banking system to the unregulated risks undertaken by the shadow banking system continue to threaten the financial system in 2016. According to the Financial Stability Board’s Global Shadow Banking Monitoring Report 2015, the United States accounted for the largest shadow-banking sector, with $14.2 trillion in 2014. The figure is more than one-third of global shadow banking assets, and represents 82 percent of the nation’s GDP.

With more than 80 percent of shadow banking activities residing in the advanced economies of North America, Asia and northern Europe, shadow banking could be one of the biggest threats to the current financial system. The report identifies the difficulty in assessing the amount of risk involved due to the lack of detailed data. The Financial Stability Board, an international board that monitors the global financial system, said the shadow-banking sector posed a huge risk of $36 trillion across 26 jurisdictions across the world in 2014.

The Guy Who Warned About Broken Libor Now Sees Fast-Money Financing as the New Risk

Financing from shadow banks is on the rise.

The cash that finances the U.S. economy is now coming from a spigot that is more prone to rapidly turning off in times of stress than the traditional banking system has been, according to the strategist who first brought attention to banks misstating key benchmark lending rates during the financial crisis in 2008.

The warning from Scott Peng, head of global portfolio solutions at Secor Asset Management in New York, comes as investors, analysts, and regulators fret about the recent selloff in the corporate bond market, which the strategist includes in his definition of the so-called “shadow banking system” of nonbank financial intermediaries. Such shadow banking includes all private-sector funding that isn’t provided by deposit-taking banks, so it encompasses bond funds as well as hedge funds, insurance companies, and pension funds, according to Peng.

While rules imposed in the wake of the financial crisis have shored up the banking system, he argues that regulators have swapped one set of systemic risks for another. World Bank data show that the percent of U.S. private-sector funding provided by banks has fallen to almost the lowest point since 1960, illustrating the growing importance of nonbank financing.

Read on.

Shadow banking worries limit China’s rebound

Telegraph UK:

Charlene Chu from Fitch said credit growth is running at a brisk 20pc, including off-book lending. She said the output generated by each extra yuan of lending has fallen from 0.75 to 0.30 this year, a sign that credit-driven growth is nearing exhaustion.

Zhiwei Ziang from Nomura said the central bank is worried about shadow banking excesses and is likely to impose curbs early, keeping the economy on a short leash.“Financial risks in the trust loan sector are mounting and the regulators will probably have to tighten controls. We would expect growth momentum to weaken,” he said.

‘Shadow Banking’ Still Thrives, System Hits $67 Trillion

The system of so-called “shadow banking,” blamed by some for aggravating the global financial crisis, grew to a new high of $67 trillion globally last year, a top regulatory group said, calling for tighter control of the sector.

A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policymakers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and banking activities.

The FSB, a task force from the world’s top 20 economies, also called for greater regulatory control of shadow banking.

“The FSB is of the view that the authorities’ approach to shadow banking has to be a targeted one,” the group wrote in a report, noting the current lax regulation of the sector.

Read on.

Exposing China’s Shadow Banking System

h/t to Zerohedge.com:

Today, however, courtesy of AsiaFinanceNews we get a report as close as possible to the most comprehensive overview of what may soon be (especially if rumors of tumbling Chinese municipal dominoes are correct) the most talked about subject in the financial world: China’s Shadow Banking empire.

From Chinese Shadow Banking System

China presently has five state-controlled megabanks operating within the supervision of the central government, of which the government is a majority shareholder, and seventeen additional “shareholder banks.” Because China’s state banking sector operates as a direct subsidyfunding channel for state-owned enterprises (as opposed to acting in the capacity of risk analytics based credit institutions), the largest state-owned banks have required periodic recapitalization every decade over the past sixty years as the constant generation and cumulative exposure to non-performing loans exceeds the banks’ total equity. The circumstances comprising the present situation, however, will include monetary exposure by international asset management firms which have acquired both direct equity-stakes in the banks as well as exposure to Hong Kong-listed shares.

State Control and Politically Mandated Loans

The banking system is generally considered to represent the weakest link in China’s political economy. Loans are typically a form of direct subsidy by the central government to the various state-owned enterprises. According to Victor Shih, a professor at Northwestern University who specializes in China’s political economy and is considered an expert on China’s banking system, prior to 1997 there had been no comprehensive audits, nor general ledgers, nor any capital stock at any of the five largest banks, as such was considered unnecessary. The central government, which controls 98% of China’s financial sector, maintains control over the banks in order to finance various political and socio-economic policy objectives, maintain capital controls and set fixed interest rates, comprising in effect a self-referential sector,  resulting in inefficient capital allocation which deprives China’s small and medium-sized enterprises (“SMEs”) of access to credit through the supervised banking system

Rejection of Western Credit Practices: Global Financial Crisis Doomed Reforms

The government halted and subsequently reversed reforms, and began moving away from western banking practices in late 2008 in response to the global credit crisis, ordering banks to originate loans to both local and centrally-planned investment projects in order to prevent a rapid slowdown in growth. The credit expansion undertaken by banks in 2009 at the direction of Chinese president Hu Jintao resulted in approximately $3.1 trillion in new loans created by the end of 2010.5 The National Development and Reform Commission (“NDRC”) fast-tracked and granted approval of virtually 100% of all fixed-asset investment projects submitted for funding by local governments. The NDRC was created to address the response to a survey by the central government asking local government officials to identify those projects for they had been unable to obtain credit financing. The role of the NDRC is to approve the projects rejected by the banks, thus in essence having approved the worst projects for financing in 2009 and continuing to approve such projects through the present

Read on below (full pdf):

The Looming Threat That Could Initiate the Next Economic Collapse: Shadow Banking

Most people now realize big banks aren’t their friends. Only in the fairy tale movie world of It’s a Wonderful Life does banker George Bailey lend a helping hand to friends and neighbors to build a prosperous Bedford Falls.

But many people have no idea that the regulated banking system is only one part of a gigantic problem. Lurking behind regulated banks is the shadow banking system. And it’s from out of these shadows that the next big shock to the global financial system, threatening everyone’s nest egg, might come.

What is shadow banking? Different writers mean different things when they use the term. But the fact that it’s hard to explain only makes it more difficult to constrain.

For our purposes, “shadow banking” is the loosely regulated or unregulated portion of the financial system outside the boundaries of the large and well-known commercial and investment banks.  The shadow banking system includes shadow banks, such as hedge funds, and shadow practices, such as inadequately regulated derivatives. This system is vast, and grew by a factor of five between 1990 and 2011, so that it now represents more than 15 trillion dollars in liabilities, according to a staff report by the Federal Reserve Bank of New York.  Shadow banking liabilities exceed those of the formal banking sector, and are currently about equal to the entire U.S. gross national product.

Why does it matter? Because this system is too big to fail — so you may end up footing the bill if something goes wrong.

 

Read on.