The next financial crisis won’t come from the banking sector. That’s the message implicit in the latest report on the global financial sector from the Financial Stability Board, the group that monitors what’s happening with the world’s money flow. Instead, it’s very likely to come from the massive and growing “shadow banking” sector—an area mostly untouched by our government regulators.
New numbers show that the shadow banking industry—which includes everything from money market funds to real-estate trusts to hedge funds—grew by a whopping $5 trillion in 2013 to $75 trillion. If you look at the sector as a percentage of the global economy, that’s nearly what is was pre-crisis, back in 2007.
That means many of the risks that used to be held on bank balance sheets have moved to the non-regulated areas of finance. This says a number of important things. First and perhaps most importantly, all the backslapping…
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