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…
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