- “Shadow Bank” now takes $ 250 trillionOr 49% of the financial assets of the world, according to the financial stability board. Hedge funds manage wealth 15 times more than they did in 2008. The latest spike in the collateral harvest-caused by flower funds without opening up a powerful business-with other people who are struggling with this uncontrolled business may be the 2008 fashion threat to the financial system.
Economist Paul McCulley created the word “Shadow Bank“In 2007, more than a year before Lehman Brothers It has fallen. Recently, it became clear that simple debt helped low mortgage fuel Meltdown That brought the world's financial system to its knees. About two decades later, a Guarantee market Selling-caused by President Donald Trump's chaos Tax Taxes It has caused fear of such a liquidity problem.
A large economy showed how various institutions and banks are involved in lending without the same level of legal investigation applied to the bank, even if it is also important for the health of the broad financial system. During this time, however, the goal has changed from investment banks and mortgage pioneers to money and private equity organizations. For example, an A common thorn In the American Treasury, which rises as the price of bonds falls, set Care On how the refined flower fund helps to keep money marketing-but it can also bring a broader threat to the economy when they reveal.
Banks, in fact, turn money deposits from customers into long -term, unequal assets as mortgages and other types of credit to consumers and businesses. Shadow banking institutions basically do the same thing, but in addition and borrow money from investors rather than using consumer deposits.
While the “Shadow Bank” notes can be heard, there is nothing wrong with it, said Amit Seru, a professor of finance at Stanford's business school and a senior at the University Hoover Institute, a conservative thinking tank. In fact, shift lending a risk outside of a traditional bank can improve the confidence of the financial system.
“That is often a point that has been lost,” he told them Luck.
Hedge's money It can take a higher risk than banks because they increase capital from investors who often agree to “close” their money for a long time, helping to encourage the company due to short -term loss. As the cervix notes, these investors often facilitate price discovery in the marketing markets and other securities.
One model is called “Basic business.
But flower money should borrow too much to make the service valuable, sometimes spending up to 50 to 100 times, so short -term debt markets can be hit when the $ 800 billion business starts.
“That has a negative effect,” Seru said. “You always need to worry about the negative effects.”
Filling to Lehman Brothers
Just because flower funds are not funded and consumers deposits do not mean the government can be forced to enter when things go south. A liar before the controversy Bank guarantee In 2008, prolonged capital management also appeared to be “too big to fail.”
The LTCM business focused on developing bets that have a huge advantage over arbitration opportunities in securities markets. Finally it came to hold about 5% of the world's income assets, but the company took the unstable losses when Russia It has been fueled by its debt In 1998. To prevent a major problem, the American government planned a $ 3.6 billion rescue package – a huge sum at the time – from Wall Street banks that allowed the company to finish in order.
“The disclosure we deal with now, I think, is bigger than that,” said Itay Goldstein, chairman of the finance department at the University of Wharton University of Pennsylvania.
Ten years later, Lehman Brothers and Bear Stearns failed, threatening to bring a lot of US banking system, and also government -backed businesses like Fannie Mae and Freddie Macdown with them. Nor did the Investment Bank take consumer deposits, but short -term debt markets were seized. Suddenly, as a large loan crunch began, banks and organizations were hungry for capital.
Along with the growing regulations and oversight in the country's major banks, the Dodd-Frank Reform Act also addressed non-bank lenders.
Still, the shadow industry has exploded since the financial crisis. Now takes 250 trillion, or 49% of the world's financial assets, According For the financial stability board, in addition to increasing the growth rate of the traditional bank in 2023. Per Bloomberg.
Volcker rulePart of Dodd-Frank, banned investment banks from the owners' business and, therefore, used as market developers to vigorously follow the arbitration opportunities. Hedge money has come in to fill the vacuum. Their dependency on short -term debt and lack of oversight, however, brings such anxiety to 2008: now they are too big, and they can be “too big.”
“If they emerge, this will affect other parts of the financial system, as well as the bank, and then the spill of a real economy,” Goldstein said.
In fact, lending institutions such as flower funds, personal equity and loan organizations, and buy-now, paid companies are the fastest-growing part of the American Bank system, noted Michael Green, portfolio manager and chief expert in property management, ETF provider. Credit to the Shadow Bank industry exceeded $ 1.2 trillion, according to weekly Statistics from the federal reserve. Green, who founded a flower bag planted by George Soros and managed the private capital of Peter Thiel, sees the obvious danger of the 2008 fashion disaster.
“Very possible,” he said, “as even closer.”
For example, when it comes to basic business, market stress programs can stop the flower's money at risk of calling and other pressure to end their positions. When the flower money gives us a great treasure, however, the market can try to take it. Move over unequal dangers can be spilled Repo marketsThe cornerstone of short -term lending, where American debt is the largest form of securities.
This situation was played during the first days of the Covid-19 disaster, forcing federal reserves to buy $ 1.6 trillion in the treasury for a few weeks. During the recent selling, economists and other market guards have looked closely at the signs that the Central Bank would need to intervene. In the last two years, the largest 10 American flower funds have increased their borrowing to $ 1.43 trillion, According to the Financial Research Office.
To control the flower money
Some scholars say this arrangement is not good and they have Recommended Fed set up a lending center to handle these types of disasters in the Treasury market. But that's a very unrealistic situation if DRM Republicans lobby Treasury Secretary Scott Bessent to reduce the government's ability to appoint major investment agencies as important in order, or “too much to fail.”
There are Continuous business In controlling these types of shadow banking institutions, Seru said. They act more like traditional banks, and prevent pricing and better financial movements from rescuers to consumers. But the threat of infectious looms, even if companies risk their own capital.
“You can't have it in both ways,” Seru said.
Also, it tightens the screws to the flower money only will not help if it enables other types of institutions to enter and basically do the same thing. After all, that's what happened when the flower funds took the opportunity for increased investigation at investment banks.
“I don't see how this makes the financial system safe,” Goldstein said.
While Seru is concerned about heavy oversight, he said architects need to focus on transparency in public and private markets. For example, if the flower money takes a lot of risks, it is important to know if they are linked to lenders who have been back by the government, such as a large bank of Wall Street.
If the exposure of a broader system is important, he said, then when measures such as capital requirements should be applied to the shadow bank institutions. But Seru warns the alcohol crisis -white when it includes traditional, highly controlled lenders and is obvious in the backlog – it can be hard to see, citing Fall of Silicon Valley Bank In 2023.
“One must be humble about what architects can capture and what markets can capture,” Seru said, “and realize that (there will be) to have issues in both sectors.”
Especially when hard risk stays in the shadows.
This story was previously shown Bahati.com
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