Talk:Shadow banking system

Dubious: worldwide derivatives debt: $1.4 quadrillion in March 2009
I cannot verify those figures except with a blog post which points to a BIC site which doesn't at all back up these assertions.

The *notional* value of derivatives may be somewhere near that, but it's certainly not debt - and not all of it is in shadow banking.

This passage is misleading, doesn't add to this topic, and should either be edited to point to what notional value means (described well in Wikipedia) or simply be removed. —Preceding unsigned comment added by Rajeck (talk • contribs) 07:29, 27 March 2009 (UTC)

I took it out. Meaningless without discussion of notional value vs. actual risk anyway.Farcaster (talk) 02:17, 6 April 2009 (UTC)

Introduction needs additional definitions of terms
I marked the introduction as "technical" because some crucial terms are not defined. I also don't understand how the use of the word "system" is justified. It sounds as if the phrase "shadow banking system" is a newly coined _metaphor_ not a "thing", and you could either talk about the origin and meaning of _the phrase_ or talk about the institutions and relationships referred to, but the two are not the same thing. —Preceding unsigned comment added by 83.105.29.229 (talk) 10:06, 1 April 2009 (UTC)

I've tried to rewrite to explain the terms and significance. I've removed the banner. Let me know what else you would like clarified and I'll take care of it.Farcaster (talk) 04:24, 6 April 2009 (UTC)

etymology
Where does the name "Shadow" come from? —Preceding unsigned comment added by 69.171.160.243 (talk) 11:09, 17 October 2010 (UTC)


 * It is clearly culturally influenced, whether or not directly inspired, by the idea of a Shadow Cabinet aka shadow government, which is the group of minister candidates that is maintained in a parliamentary system by the opposition (i.e., the coalition of parties not currently in power, where "in power" refers to being the group that chooses the ministers who have the executive authority). The idea is that alongside the "official" system, there is an alternate system that either is ready to step in and start doing the job (in the case of a shadow cabinet) or is already doing the job (de facto) despite not being nominally the job-doer (in the case of a shadow banking system). 198.185.18.207 (talk) 12:52, 9 May 2011 (UTC)


 * That's a very generous etymology, and might make sense had the term arisen in the UK. It did not, however. It is called "shadow" banking because its activities take place in the "shadows" away from government regulation. --Janko (talk) 19:14, 11 September 2012 (UTC)
 * Do you have a source for that? bobrayner (talk) 21:38, 17 September 2012 (UTC)

Hi, I was redirected here from clicking on a link that said [Non-bank financial systems] and I realized that what seems to be be going on here is the idea of a psychological shaodw projection in which people are seeing the goverment systems as a Super-Ego function and projecting any non-goverment regulated as shadow psychological functions. The title is factually inacurate in function and should be changed back to [Non-bank financial systems] as a means of calrity and literal deffintion. — Preceding unsigned comment added by 2600:4040:9939:EF00:FD1D:DEBF:508F:D363 (talk) 18:31, 24 September 2023 (UTC)

Relation to the repo market
If my extremely cursory gleaning into this subject matter is correct then the repo markets is a tool used by the shadow banking system. In any case there seems to be a significant connection, and with Wikipedia currently lacking a repo market article, it would be beneficial for the present article to get into connecting some dots and explaing this. __meco (talk) 16:09, 19 October 2010 (UTC)

Look out, they're doing it again
This time it's a shadow insurance industry (via self-insuring with captive subsidiaries, not new per se, but the expanding usage is new). Per. 198.185.18.207 (talk) 13:01, 9 May 2011 (UTC)

insurers
An anon wants to add that link; I can't think of a clearer example of WP:OVERLINK. — Arthur Rubin (talk) 05:51, 28 October 2011 (UTC)
 * Actually closer to WP:EGG, as it links to insurance. — Arthur Rubin  (talk) 05:52, 28 October 2011 (UTC)

Investment banks are not SBS institutions
This is a very clear and well presented article. But it has an outdated and overly broad definition of what the SBS is. Back in 07/08 when the term was less frequently used, its scope was more ambiguous. One used to sometimes hear bankers use the term to include even top tier investment banks like Lehman and Bear. But Id be very surprised if any sources from 2010 & 2011 can be found where serious bankers, regulators or academics use the term to include banks themselves. Some of the existing sources in the history, and new ones I will soon add, specifically exclude banks from the SBS. While less so than the deposit taking banks, investment banks like Lehman were regulated and monitored, and were not themselves shadow institutions. True, billions of dollars of their dealing was in the SBS, often via the hundreds of SIV and other ad hoc registered companies they controlled, but the banks themselves were not SBS entities. I will edit accordingly, and thanks to those who have created this otherwise good article. FeydHuxtable (talk) 13:38, 28 October 2011 (UTC)

Contradiction
The article contradicts itself. First it says: "Investment banks may conduct much of their business in the shadow banking system (SBS), but they are not SBS institutions themselves." Then later it says: "Shadow institutions like investment banks borrowed from investors in short-term, liquid markets...". These two sentences contradict each other. — Preceding unsigned comment added by 208.77.212.41 (talk) 17:31, 29 November 2011 (UTC)
 * Thanks for pointing that out, have just corrected.  See the section above for the reason why the contradiction got in there. FeydHuxtable (talk) 13:48, 30 November 2011 (UTC)

ref #9 is a dead linke @ pimco.com
skakEL 20:36, 16 January 2012 (UTC)

"bn" vs "trillion"
My understanding is that an article should be consistent, including the way you write large numbers. For most of the article the word trillion is used for anything over $999 billion, not $1,000bn for example. In the opening section there are both "trillion" and "bn". Even though a source may list a number as "bn" I hardly doubt changing it to trillion changes any meaning or factuality. This reminds me of the "color/colour" debate and in the end you go with the most common spelling already within the article and look at what the article is about (dealing the UK for example would more likely use the British English spelling). Should the differences stay or made consistent? Coinmanj (talk) 16:38, 7 May 2012 (UTC)


 * I think it does change the meaning:

1,000,000,000     one billion 1,000,000,000,000 one trillion
 * however, I agree that notation should be consistent, so either abbreviations or spelled out, but not both. Also, the numbers should be identified with scale reference. &mdash; Sctechlaw (talk) 21:03, 7 May 2012 (UTC)

Well 1,0000 bn is equal to 1 trillion unless I'm mistaken and since the short scale is most commonly used in English speaking countries I think that listing any numbers that are 1,000bn or higher as trillion would make the article more consistent. Unless there are any objections I'll make the proper changes. Coinmanj (talk) 03:55, 13 May 2012 (UTC)

Gary Gorton interview
Much of what he says here fits perfectly with the last paragraphs of this article. --Ayacop (talk) 06:42, 22 August 2012 (UTC)

Suggestions for this article
Hi, I'd like to make a few suggestions for changes to improve the content of the article, with the goal of making sure the information in this article is accurate and clear. While I am not a financial expert, I am proposing these changes on behalf of the Managed Funds Association, who are providing guidance on the concepts involved here. As I do have a conflict of interest here, I won't be making any edits to the article but hope that other editors will review my suggestions and make them if they're appropriate.

The first two suggestions I have are for the lead. To the end of the first paragraph, I'd like to suggest adding the following statement in green, which clarifies the relative leverage size of entities conducting business within the shadow banking system:


 * The shadow banking system is the collection of financial entities, infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge funds, money market funds and structured investment vehicles (SIV). Investment banks may conduct much of their business in the shadow banking system (SBS), but most are not SBS institutions themselves.  Among these entities, money market funds and investment banks hold the largest assets in real dollars and typically employ more leverage than the others, particularly hedge funds.

For the second change, I'd like to suggest replacing the below sentences from the beginning of the third paragraph of the lead:


 * The volume of transactions in the shadow banking system grew dramatically after the year 2000. By late 2007 the size of the SBS in the U.S. exceeded $10 trillion and by late 2011 had increased to $24 trillion according to the Financial Stability Board.

The first sentence is not supported by the source, nor is this information included later in the article. In addition, the source here does not support that the SBS was $10 trillion in 2007. According to a source I've found from the Financial Stability Board, the SBS actually reduced in size from 2007 to 2011. To improve the accuracy of this part of the lead, I'd like to suggest replacing the text in red above with the following:


 * In 2007 the Financial Stability Board estimated the size of the SBS in the U.S. to be around $25 trillion, and by 2011 estimates decreased to $24 trillion.

If these seem like reasonable changes, I hope someone will make them. This page is on my watchlist so feel free to reply here and I'll respond when I can. Cheers, WWB Too (Talk · COI) 19:11, 19 September 2012 (UTC)
 * Hi, thanks for going to the trouble to explain this. Ive made the second change you requested with a few amendments, but Im not making the first. Its been a few years since I worked in an investment bank so could be wrong, but AFAIK money markets use next to no leverage.  Also, while some sources do list them as being part of the SBS,  this is only as they are less regulated than regular deposit taking banks, not as they perform shady, risky and complex transactions in the same way that some IB and HFs do. That said, youre right that MMs control more cash than HFs, and IB trading desks did often use far more leverage than the average HF, at least before the crisis.  Just because Im not going to make the suggested edit doesnt mean Id revert it if you made it.  For financial articles, there are very few active editors with good  up to date knowledge of the sector.  My advice for articles like this that arent being actively edited, is to make any desired edits yourself, and if you think there is a possible COI issue, make a note of it on the talk page.  Ignore me if you want, but think it would be a better use of resource. FeydHuxtable (talk) 19:18, 9 October 2012 (UTC)


 * Hi Feyd, sorry about the delay in following up. Thanks for updating the SBS size estimate from the FBS source; looks better. Though I'd like to ask again about the first request later, right now I'd like to propose adding citations for the unsourced first two sentences of the lead's third paragraph. (Also: I appreciate your invitation to edit directly, however I prefer to not do so, given my potential conflict of interest as a paid representative.)


 * So the first of these sentences, covering the growth of the SBS following 2000, is actually verified by the FT article which is the final reference in this section. Alas, it isn't named. I'd suggest . The second is the sentence you added, about its brief dip following the financial crisis. This report should cover it:




 * Mind adding those? Should be a simple thing. Cheers, WWB Too (Talk &middot; COI) 19:55, 12 October 2012 (UTC)
 * Done. The assertions were already covered by subsequent refs, the Masters source also partly covers the dip, and generally I dont like to have lots of refs in the lede, per MOS. But no harm in complying with your request, and the Inquiry source looks especially good for relating the SBS to the crisis.  Re your first request, I still wont be adding it even in a modified form as I dont think its accurate or useful. But thats a matter of interpretation and maybe I have a bias in favor of IBs rather than HFs. As said I certainly wont revert if you get someone else to add it. Thanks again for explaining your requirements so clearly, not many bother to do that these days. FeydHuxtable (talk) 06:20, 15 October 2012 (UTC)

Suggestions for Entities that make up the system
Hi there, Feyd. Since you're interested in the subject and open to my suggestions (if not of like mind about everything) I'd actually like I move on to some of the other changes I'm interested in making. So here's what I've got:

I'd also like to propose changes to the Entities that make up the system section, which has had a "needs additional citations for verification" tag since June. The first paragraph is currently uncited. I would like to correct that by adding an appropriate source and also improve it by wikilinking some key words such as hedge funds. Below I've included the text that I propose and the markup for the new text:

Within the same section, the fourth and fifth paragraphs currently state that:


 * This largely unregulated sector was worth about $60 trillion in 2010, having grown from an estimated $27 trillion in 2002, according to the FSB. While the sector's assets declined during the global financial crisis, they have since returned to their pre-crisis peak.


 * There are concerns that more business may move into the shadow banking system as regulators seek to bolster the financial system by making bank rules stricter.

This information is factually correct, but it is not cited and the language is in need of some tweaks to improve clarity. I propose the following replacement text with new citations:

If these seem like sensible changes, are you willing to add them? Or, if you have questions and want to discuss, I'll try to respond in a timely manner. Cheers, WWB Too (Talk · COI) 15:33, 16 October 2012 (UTC)


 * These references seem useful and wording improves the article so have implemented them and removed the tag. Sargdub (talk) 03:24, 17 October 2012 (UTC)

Shadow banks' role in the financial system and their modus operandi
Thanks Sargdub, for your help with the change above. If you and / or FeydHuxtable are interested, I have another proposal addressing unsourced material, this time in the Shadow banks' role in the financial system and their modus operandi subsection.

To the current text, I'd like to propose adding a citation to support the current information, along with some further contextualizing details. Below is the section, with the citations and new text I propose (shown in green):

Here is the markup for the section (existing text + changes):

Once again, if these edits are reasonable, I hope that editors will make them. Cheers, WWB Too (Talk · COI) 15:54, 19 October 2012 (UTC)
 * Hi WWB_Too, thanks again for the excellent way you present your requests. I've implemented them, though with some additional paraphrasing. Please dont take this as a criticism, its just I've several times witnessed the horror at RfA, where hoardes of elitists often like to brand good editors as plaigurists and copyright violators just because they've copied a couple of sentences from sources with only minor changes and without using quotation marks. (Even when the sources are cited).  Your suggested changes were certainly a massive improvement. All that said, please dont message me about this topic again on my talk. Almost all your suggested edits are of excellent quality, but Im no longer especially interested in this topic and there are so many other matters requiring attention...  FeydHuxtable (talk) 13:48, 16 November 2012 (UTC)


 * Thanks for your help here Feyd. I understand about your not being interested in this topic any longer and I'll see if I can find others who can help with any further requests. Cheers, WWB Too (Talk &middot; COI) 18:40, 16 November 2012 (UTC)

One last suggestion
I have one final, small suggestion to improve this article. The Importance section currently outlines the growth of the shadow banking sector and details its important role as a credit provider in the financial system. The data contained here is fine, but the last line inaccurately summarizes the preceding excerpt from a 2008 Timothy Geithner speech. The line currently reads as follows:


 * In other words, lending through the shadow banking system slightly exceeded lending via the traditional banking system based on outstanding balances.

Geithner's quote actually explains that "non-banking financial system" activity is growing; not that lending through the shadow banking system exceeded traditional lending. Even if the more ambiguous "shadow banking" term had been used, it is still not correct to equate assets held by broad industry categories with volume of lending offered by SBS institutions. SBS lending is a completely different exercise than what a hedge fund does or what the assets of a bank holding company are.

I propose that we cut this summary line and simply let the quotation speak for itself. If this change seems neutral and acceptable to others, I hope another editor will implement it. Please let me know if you have any questions. Cheers, WWB Too (Talk · COI) 17:12, 19 November 2012 (UTC)
 * As this last one didn't take much thought, I thought I sort it for you to save you waiting. FeydHuxtable (talk) 19:24, 20 November 2012 (UTC)


 * Oh, unexpected but appreciated! Thanks for taking the trouble, Feyd. WWB Too (Talk &middot; COI) 22:08, 20 November 2012 (UTC)

OMG, did anyone catch this?!
"Contribution to the 2007–2012 financial crisis Main article: Great Recession

''The financial crisis of 2007-2012 is attributed to central bank having the authority to create an arbitrary amount of money to benefit the banks. The central banking system developed by our predecessors cannot scale to the level of our complex economy. When you have 7 people deciding how to distribute capital of society, you have a system of abuse and capital misallocation. A better system is a distributed banking system whereby new money is distributed evenly to the people. This kind of banking system permits the people to decide how much money banks and governments can have.''

''This financial crisis is worse than many previous crises but not as bad as the Great Depression yet no one even dare to challenge the central banking system. It is this system that causes capital misallocation to accumulate to the point of crises that require bandaid solution. We then inherit this psychology it is NATURAL to have boom and bust that it is beyond our ability to fix and make right. That's like giving ourselves to the Black Death saying the demons and devils have risen and judgement day is coming to all on earth. By not going deeper to the epicenter of the problem and changing a poorly design banking system will continue to put our society in more precarious situation."''

'''Who the hell wrote this? Someone want to flag it and take it down???'''

— Preceding unsigned comment added by 129.110.241.69 (talk • contribs)

What legislation allowed or enabled shadow banking?
Read the article but nowhere is it mentioned what legislation allowed Shadow Banking? Was it repeal of Glass-Steagall Act or enactment of the Commodities Futures Modernization Act? This should be in lede paragraph or overview. Raquel Baranow (talk) 16:20, 11 November 2013 (UTC)
 * Found this: " In 2000, credit default swaps became largely exempt from regulation by both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Commodity Futures Modernization Act of 2000, which was also responsible for the Enron loophole,[6] specifically stated that CDSs are neither futures nor securities and so are outside the remit of the SEC and CFTC.[47]" (Italics added) HERE Raquel Baranow (talk) 16:46, 11 November 2013 (UTC)
 * All those are American laws. Does "shadow banking" have any meaning in the rest of the world? bobrayner (talk) 19:53, 11 November 2013 (UTC)

More recent information is available
More recent information and statistics on shadow banking are available in the 2015 Financial Stability Board Shadow Banking Monitoring Report (see link below). It might be helpful to update with these new statistics because these are more accurate and use a revised methodology. The release below also sets out more details on the policy measures that have been developed. http://www.fsb.org/2015/11/fsb-publishes-standards-and-processes-for-global-securities-financing-data-collection-and-aggregation-2/
 * Thank you for your suggestion. Could you point out any specific passages or statistics that require updating based on this report? Thanks, Altamel (talk) 19:28, 30 April 2016 (UTC)

Uncited and problematic content
This line at the end of the section on entities that make up the system does not have a source or clear attribution:
 * The inclusion of money market funds in the definition of shadow banking has been questioned in view of their relatively simple structure and the highly regulated and unleveraged nature of these entities, which are considered safer, more liquid, and more transparent than banks.

This claim seems to be directly contradicted by the fact that the lack of transparency and instability of money market funds contributed to the 2008 financial crisis. 

It also seems inaccurate to suggest that they are more heavily regulated than traditional banks, no?

You can see here that a number of edits were made by the same user downplaying the risks of money market funds. The article contradicts this view in the section on the history of the term where it is stated that:
 * "McCulley identified the birth of the shadow banking system with the development of money market funds in the 1970s – money market accounts function largely as bank deposits, but money market funds are not regulated as banks."

So not only are money market funds not disputed to be a part of the shadow banking system, the term was actually created specifically to refer to them! Given this I'd say all of this user's edits should be reverted unless someone can provide a good reason why money market funds should be treated differently than the other entities discussed.

184.66.253.181 (talk) 06:35, 21 March 2020 (UTC)

Heavy reliance on a questionable source
The page cites this Reuters article a number of times for some pretty critical points, yet this source does not seem remotely reliable. The author makes several questionable claims, like:
 * Given the specialized nature of some shadow banks, they can often provide credit more cost-efficiently than traditional banks.

and:


 * The shadow banking system is very important for the economy because it provides funding to traditional banks and without this funding, traditional banks would not lend money, which would then slow growth in the wider economy.

Nothing is cited to back up these claims at all.

Additionally, quite a few lines from the Reuters article are repeated verbatim on the page but not treated as quotes. I'm not sure if that's against Wiki policy or not.

It seems to me like this reference should probably be removed, along with the sections of the article it is supposed to be supporting.

184.66.253.181 (talk) 07:28, 21 March 2020 (UTC)