Will unregulated, debt-based financial products destroy the world? Bloomberg reports that the funneling of capital into instruments of so-called “shadow banking” continues to balloon to unimaginably large proportions:
The shadow banking industry has grown to about $67 trillion, leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight. The Financial Stability Board, a global financial policy group comprised of regulators and central bankers, found that shadow banking grew by $41 trillion between 2002 and 2011.
The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off-balance sheet investment vehicles, “can create systemic risks” and “amplify market reactions when market liquidity is scarce,” the FSB said.
Supervisors consider shadow banking activities to be those that allow banks to carry out business off balance sheets, as well as those which allow investors to bypass lenders and the functions they traditionally fulfill on the markets.