The G20’s Financial Stability Board (FSB) said Sunday that the market for debt-based products, which it calls the “shadow banking” industry, was worth an astonishing $67 trillion at the end of 2011.
The FSB’s report (PDF) explained that the U.S. had by far the largest shadow banking sector in 2011, worth approximately $23 trillion. The U.S. was followed by the European Union at $22 trillion and the United Kingdom at $9 trillion.
The report aims to recommend policy actions that governments can take to prevent electronic bank runs in the mostly unregulated sector, which it blames for the 2008 economic crisis.
The report also charts the rise of the shadow banking industry, going from $26 trillion to $62 trillion from 2002-2007. The crisis in 2008, which saw unemployment soar in the U.S., didn’t slow it down much either: the report says that the value of debt products “declined slightly” before zooming back up.
All told, the FSB says that the shadow banking industry is now worth about half of all bank holdings around the world, and more than 111 percent of the annual gross domestic product of all nations. The U.S. gross domestic product was $15.09 trillion in 2011.
“The FSB is of the view that the authorities’ approach to shadow banking has to be a targeted one,” the report explains. “The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial stability.”
Though the U.S. has largely passed on issuing regulations for shadow banking, the European Union is expected to reign the market in sometime next year. The FSB warned, however, that regulators should be careful not to raise capital requirements on banks, saying it could cause them to lean more on shadow banking methods off the balance sheet to increase profitability.
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