Talk:Shadow banking system

Hi, I'd like to make a few suggestions for changes to improve the content of the article, with the goal of making sure the information in this article is accurate and clear. While I am not a financial expert, I am proposing these changes on behalf of the Managed Funds Association, who are providing guidance on the concepts involved here. As I do have a conflict of interest here, I won't be making any edits to the article but hope that other editors will review my suggestions and make them if they're appropriate.

The first two suggestions I have are for the lead. To the end of the first paragraph, I'd like to suggest adding the following statement in green, which clarifies the relative leverage size of entities conducting business within the shadow banking system:

The shadow banking system is the collection of financial entities, infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge funds, money market funds and structured investment vehicles (SIV). Investment banks may conduct much of their business in the shadow banking system (SBS), but most are not SBS institutions themselves.^[1][2] Among these entities, money market funds and investment banks hold the largest assets in real dollars and typically employ more leverage than the others, particularly hedge funds.^[3]

For the second change, I'd like to suggest replacing the below sentences from the beginning of the third paragraph of the lead:

The volume of transactions in the shadow banking system grew dramatically after the year 2000. By late 2007 the size of the SBS in the U.S. exceeded $10 trillion and by late 2011 had increased to $24 trillion according to the Financial Stability Board.^[1]

The first sentence is not supported by the source, nor is this information included later in the article. In addition, the source here does not support that the SBS was $10 trillion in 2007. According to a source I've found from the Financial Stability Board, the SBS actually reduced in size from 2007 to 2011. To improve the accuracy of this part of the lead, I'd like to suggest replacing the text in red above with the following:

In 2007 the Financial Stability Board estimated the size of the SBS in the U.S. to be around $25 trillion, and by 2011 estimates decreased to $24 trillion.^[1][2]

If these seem like reasonable changes, I hope someone will make them. This page is on my watchlist so feel free to reply here and I'll respond when I can. Cheers, WWB Too (Talk · COI) 19:11, 19 September 2012 (UTC)

Hi, thanks for going to the trouble to explain this. Ive made the second change you requested with a few amendments, but Im not making the first. Its been a few years since I worked in an investment bank so could be wrong, but AFAIK money markets use next to no leverage. Also , while some sources do list them as being part of the SBS, this is only as they are less regulated than regular deposit taking banks, not as they perform shady, risky and complex transactions in the same way that some IB and HFs do. That said, youre right that MMs control more cash than HFs, and IB trading desks did often use far more leverage than the average HF, at least before the crisis. Just because Im not going to make the suggested edit doesnt mean Id revert it if you made it. For financial articles, there are very few active editors with good up to date knowledge of the sector. My advice for articles like this that arent being actively edited, is to make any desired edits yourself, and if you think there is a possible COI issue, make a note of it on the talk page. Ignore me if you want, but think it would be a better use of resource. FeydHuxtable (talk) 19:18, 9 October 2012 (UTC)

Hi Feyd, sorry about the delay in following up. Thanks for updating the SBS size estimate from the FBS source; looks better. Though I'd like to ask again about the first request later, right now I'd like to propose adding citations for the unsourced first two sentences of the lead's third paragraph. (Also: I appreciate your invitation to edit directly, however I prefer to not do so, given my potential conflict of interest as a paid representative.)

So the first of these sentences, covering the growth of the SBS following 2000, is actually verified by the FT article which is the final reference in this section. Alas, it isn't named. I'd suggest <ref name=Masters"/>. The second is the sentence you added, about its brief dip following the financial crisis. This report should cover it:

<ref name="FCICR">{{Cite report |author= |authorlink= |coauthors= |date=January 2011 |title=Financial Crisis Inquiry Commission Report |url=http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_chapter2.pdf |publisher=The Financial Crisis Inquiry Comission |chapter=Chapter 2 Shadow Banking |docket= |accessdate=12 October 2012 |quote= }}</ref>

Mind adding those? Should be a simple thing. Cheers, WWB Too (Talk · COI) 19:55, 12 October 2012 (UTC)

Done. The assertions were already covered by subsequent refs, the Masters source also partly covers the dip, and generally I dont like to have lots of refs in the lede, per MOS. But no harm in complying with your request, and the Inquiry source looks especially good for relating the SBS to the crisis. Re your first request, I still wont be adding it even in a modified form as I dont think its accurate or useful. But thats a matter of interpretation and maybe I have a bias in favor of IBs rather than HFs. As said I certainly wont revert if you get someone else to add it. Thanks again for explaining your requirements so clearly, not many bother to do that these days. FeydHuxtable (talk) 06:20, 15 October 2012 (UTC)

One last suggestion

This edit request by an editor with a conflict of interest has now been answered.

I have one final, small suggestion to improve this article. The Importance section currently outlines the growth of the shadow banking sector and details its important role as a credit provider in the financial system. The data contained here is fine, but the last line inaccurately summarizes the preceding excerpt from a 2008 Timothy Geithner speech. The line currently reads as follows:

In other words, lending through the shadow banking system slightly exceeded lending via the traditional banking system based on outstanding balances.

Geithner's quote actually explains that "non-banking financial system" activity is growing; not that lending through the shadow banking system exceeded traditional lending. Even if the more ambiguous "shadow banking" term had been used, it is still not correct to equate assets held by broad industry categories with volume of lending offered by SBS institutions. SBS lending is a completely different exercise than what a hedge fund does or what the assets of a bank holding company are.

I propose that we cut this summary line and simply let the quotation speak for itself. If this change seems neutral and acceptable to others, I hope another editor will implement it. Please let me know if you have any questions. Cheers, WWB Too (Talk · COI) 17:12, 19 November 2012 (UTC)

As this last one didn't take much thought, I thought I sort it for you to save you waiting. FeydHuxtable (talk) 19:24, 20 November 2012 (UTC)

Oh, unexpected but appreciated! Thanks for taking the trouble, Feyd. WWB Too (Talk · COI) 22:08, 20 November 2012 (UTC)

"Contribution to the 2007–2012 financial crisis Main article: Great Recession

The financial crisis of 2007-2012 is attributed to central bank having the authority to create an arbitrary amount of money to benefit the banks. The central banking system developed by our predecessors cannot scale to the level of our complex economy. When you have 7 people deciding how to distribute capital of society, you have a system of abuse and capital misallocation. A better system is a distributed banking system whereby new money is distributed evenly to the people. This kind of banking system permits the people to decide how much money banks and governments can have.

This financial crisis is worse than many previous crises but not as bad as the Great Depression yet no one even dare to challenge the central banking system. It is this system that causes capital misallocation to accumulate to the point of crises that require bandaid solution. We then inherit this psychology it is NATURAL to have boom and bust that it is beyond our ability to fix and make right. That's like giving ourselves to the Black Death saying the demons and devils have risen and judgement day is coming to all on earth. By not going deeper to the epicenter of the problem and changing a poorly design banking system will continue to put our society in more precarious situation."

Who the hell wrote this? Someone want to flag it and take it down???

— Preceding unsigned comment added by 129.110.241.69 (talk • contribs)

Read the article but nowhere is it mentioned what legislation allowed Shadow Banking? Was it repeal of Glass-Steagall Act or enactment of the Commodities Futures Modernization Act? This should be in lede paragraph or overview. Raquel Baranow (talk) 16:20, 11 November 2013 (UTC)

Found this: " In 2000, credit default swaps became largely exempt from regulation by both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Commodity Futures Modernization Act of 2000, which was also responsible for the Enron loophole,[6] specifically stated that CDSs are neither futures nor securities and so are outside the remit of the SEC and CFTC.[47]" (Italics added) HERE Raquel Baranow (talk) 16:46, 11 November 2013 (UTC)

All those are American laws. Does "shadow banking" have any meaning in the rest of the world? bobrayner (talk) 19:53, 11 November 2013 (UTC)

This edit request by an editor with a conflict of interest has now been answered.

More recent information and statistics on shadow banking are available in the 2015 Financial Stability Board Shadow Banking Monitoring Report (see link below). It might be helpful to update with these new statistics because these are more accurate and use a revised methodology. The release below also sets out more details on the policy measures that have been developed. http://www.fsb.org/2015/11/fsb-publishes-standards-and-processes-for-global-securities-financing-data-collection-and-aggregation-2/

Thank you for your suggestion. Could you point out any specific passages or statistics that require updating based on this report? Thanks, Altamel (talk) 19:28, 30 April 2016 (UTC)

This line at the end of the section on entities that make up the system does not have a source or clear attribution:

The inclusion of money market funds in the definition of shadow banking has been questioned in view of their relatively simple structure and the highly regulated and unleveraged nature of these entities, which are considered safer, more liquid, and more transparent than banks.

This claim seems to be directly contradicted by the fact that the lack of transparency and instability of money market funds contributed to the 2008 financial crisis.

It also seems inaccurate to suggest that they are more heavily regulated than traditional banks, no?

You can see here that a number of edits were made by the same user downplaying the risks of money market funds. The article contradicts this view in the section on the history of the term where it is stated that:

"McCulley identified the birth of the shadow banking system with the development of money market funds in the 1970s – money market accounts function largely as bank deposits, but money market funds are not regulated as banks."

So not only are money market funds not disputed to be a part of the shadow banking system, the term was actually created specifically to refer to them! Given this I'd say all of this user's edits should be reverted unless someone can provide a good reason why money market funds should be treated differently than the other entities discussed.

184.66.253.181 (talk) 06:35, 21 March 2020 (UTC)

The page cites this Reuters article a number of times for some pretty critical points, yet this source does not seem remotely reliable. The author makes several questionable claims, like:

Given the specialized nature of some shadow banks, they can often provide credit more cost-efficiently than traditional banks.

and:

The shadow banking system is very important for the economy because it provides funding to traditional banks and without this funding, traditional banks would not lend money, which would then slow growth in the wider economy.

Nothing is cited to back up these claims at all.

Additionally, quite a few lines from the Reuters article are repeated verbatim on the page but not treated as quotes. I'm not sure if that's against Wiki policy or not.

It seems to me like this reference should probably be removed, along with the sections of the article it is supposed to be supporting.

184.66.253.181 (talk) 07:28, 21 March 2020 (UTC)

This article was the subject of a Wiki Education Foundation-supported course assignment, between 22 May 2024 and 24 August 2024. Further details are available on the course page. Student editor(s): Garnix L (article contribs).

— Assignment last updated by Zq2197 (talk) 04:29, 17 August 2024 (UTC)