May 22, 2019

Fitch issues a warning on shadow banking

Banks are healthier and taking on less risk, but that doesn't necessarily mean that the financial system is safe. The risk has largely just moved outside the banking system to the so-called shadow banking industry, ratings agency Fitch said Tuesday.

What it means: Shadow banks are financial institutions outside the traditional banking sphere that aren't governed by U.S. banking regulations.

Fitch warns:

  • "Shadow banking's ascension may signal growing systemic risks."
  • "Shadow banking [is] exhibiting notable post-crisis growth, driven by bank regulation, low interest rates, the favorable economic backdrop and the growth of financial technology."

Why it matters: The risks could include "direct and indirect exposures faced by banks, insurance companies and pension funds, reduced financing availability for banks and non-financial corporate borrowers, and increased asset price volatility," Fitch analysts note.

  • The shadow banking industry held $52 trillion globally, 13.6% of total financial assets, at the end of 2017. That's up from $30 trillion at the end of 2010, according to the Financial Stability Board.

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