Shadow banking grows while lending trails

By John O’Donnell

DUBLIN (Reuters) – Banks gave less cross-border credit globally in the second quarter of this year while the shadow banking sector, which includes hedge funds, continued to grow, new data published on Thursday showed.

The Bank for International Settlements’ data shows the continued trend of cautious banks retreating to national boundaries since the financial crash, while private equity funds and others win more credit and clout.

Cross-border bank credit shrank by $91 billion between the end of March and end of June after strong growth at the start of the year.

During this time, the BIS calculated that the stock of cross-border loans and deposits totaled roughly $19 trillion compared to a peak of more than $26 trillion before the banking collapse.

The amount of cross-border credit given to ‘non-banks’, a broad group that includes funds, special purpose vehicles, private equity and hedge funds, has more than doubled since the end of 2013 to over $5 trillion now.

James Stewart, an expert in shadow banking with Ireland’s Trinity College, said the data highlighted the need for tighter supervision of the sector.

“The whole focus of regulation is on the banking system and not the shadow banks,” he said. “There are systemic risks but we don’t know what they are because they depend on the links to mainstream finance.”

The research by the Basel-based group that is owned by central banks also found that cross-border lending to China rose for the third quarter in a row, up $78 billion, taking its annual growth to 25 percent.

To find the statistics, click on: https://www.bis.org/statistics/rppb1710.htm

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