Tip of Debt Iceberg

‘Shadow banks’ have grown rapidly and, like banks, are exposed to risk from higher interest rates

SVB’s core problem was that it owned a lot of government debt funded by unstable deposits. As interest rates rose sharply last year, the mark-to-market value of that debt plummeted, and deposits became more expensive and scarcer.

A lot of banks own similarly devalued bonds. But that is just the tip of a debt iceberg. 

Since the end of 2009, total debt owed by governments, business and households has risen 90% to $68 trillion.

Banks are the most visible debtholders, but, collectively, just as much debt is held by pension and mutual funds, private-credit funds, life insurers, business-development companies, hedge funds, and other nonbanks—or, as they are sometimes called, shadow banks.

Shadow banks have grown considerably since the global financial crisis. The fastest-growing segment is private credit—loans to companies generally too small to issue bonds but who want to avoid more restrictive bank loans. 

Since the start of 2008, private credit has grown almost sixfold, to $1.5 trillion, according to the IMF—bigger than the high-yield bond or leveraged-loan markets. 

At $4.4 trillion, those three markets are worth more than all banks’ commercial and industrial loans, at $2.7 trillion.

Greg Ip WSJ 26 April 2023

https://www.wsj.com/articles/banking-problems-may-be-tip-of-debt-iceberg-262b6d0e

Shadow banks manage $63tn in financial assets — up from $30tn a decade ago.

https://englundmacro.blogspot.com/2023/04/post-2008-regulations-may-save-us-from.html