Post-2008 regulations may save us from a bank panic. The danger is every other financial institution
Best to whistle past the International Monetary Fund’s latest Global Financial Stability Report
Nonbank financial intermediaries—insurers, pension funds, hedge funds, money-market funds, asset managers and plenty of others—now hold some 50% of global financial assets, the IMF notes, up from 40% in 2008.
The growth has been fueled in part by the heavier regulatory burden placed on banks in that period, which made it harder for banks to play their customary role as intermediaries.
These trends together amplify the risk nonbanks pose to one another in a panic, and the risk they pose collectively to the traditional banking system on a global scale. Especially if fire-selling in a crisis sets in motion a sudden collapse in asset values—as British pension funds overexposed to U.K. gilts discovered last year.
The IMF, predictably, argues for more regulation. Its biggest howler is the suggestion that to stabilize financial markets in a nonbank panic, central banks should extend their lender-of-last-resort protection to such institutions. Various central banks already have done this in various panics, and it does make the pain stop.
But this “solution” merely converts the nonbank problem into a bank problem by extending the central-bank backstop that used to be the sine qua non of a real bank.
Joseph C. Sternberg WSJ 6 April 2023
International Monetary Fund’s latest Global Financial Stability Report
https://www.imf.org/en/publications/gfsr
How shadow banks threaten the global economy
Shadow banks manage $63tn in financial assets — up from $30tn a decade ago.
https://englundmacro.blogspot.com/2022/09/15-years-on-from-great-financial-crisis.html
About Shadow banks on this blogg
https://englundmacro.blogspot.com/search?q=shadow+banks+
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