Friday, March 28, 2014

The Growth Of Shadow Banking

This report from the NY Federal Reserve shows the rise the finance sector in the US but much of the growth has come from financial institutions that are not part of the regulated banking system.  The financial crisis was triggered by these "shadow banks" which lost their source of funding when the assets that used as collateral for short term loans declined in value.  The Dodd-Frank bill which resulted from the financial crisis has been focused on regulating the traditional banking system.  However, the shadow banking system has recovered from the financial crisis and it is growing faster than the regulated banking system.  It also has a higher stock evaluation so the market believes that it will continue to grow faster than the regulated banking system.

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