FSB FINANCIAL STABILITY BOARD Global Shadow Banking Monitoring Report 2015 12 November 2015
Global Shadow Banking Monitoring Report 2015 12 November 2015
The report is accompanied by the publication of a dataset on a jurisdiction and aggregate level, which also includes the data underlying most of the exhibits shown in the report. These data are available at ShadowBankingMonitoringdaTaset2015,http://www.fsb.org/wp- content/uploads/shadow banking monitoring dataset 2015.xls, and .Underlyingdataforexhibitshttp://www.fsborg/wp- content/uploads/shadow banking underlying data for exhibits 2015.xl
The report is accompanied by the publication of a dataset on a jurisdiction and aggregate level, which also includes the data underlying most of the exhibits shown in the report. These data are available at: • Shadow Banking Monitoring Dataset 2015, http://www.fsb.org/wpcontent/uploads/shadow_banking_monitoring_dataset_2015.xls; and • Underlying data for exhibits, http://www.fsb.org/wpcontent/uploads/shadow_banking_underlying_data_for_exhibits_2015.xls
Table of contents Executive summary The narrow measure The Broad measur Methodological improvements Introduction 6 A measure of shadow banking based on economic functions 6 2. 1 Economic functions approach 2.2 Global perspective 2.3 Cross-jurisdiction analys 2.4 Breakdown by economic functions Shadow banking risks and interconnectedness Shadow banking risks 3.2 Interconnectedness between banks and other financial intermediaries Broader macro picture of all non-bank financial intermediat 4. 1 Insurance Companies and pension Funds 4.2 Other Financial Intermediaries(OFIs Credit and lending patterns 5.1 Credit assets 5.2 Lending Annex 1: Exclusion of OFI entity types from shadow banking Annex 2 The non-bank financial sector in Ireland Annex 3: FSB Regional Consultative Group for the Americas second report on shadow banking nnex 4: Share of total financial assets by jurisdiction
Table of Contents Page Executive summary.................................................................................................................... 1 The Narrow Measure ................................................................................................. 2 The Broad Measure.................................................................................................... 2 Methodological improvements.................................................................................. 3 1. Introduction................................................................................................................ 6 2. A measure of shadow banking based on economic functions................................... 6 2.1 Economic functions approach.................................................................................... 7 2.2 Global perspective ..................................................................................................... 9 2.3 Cross-jurisdiction analysis....................................................................................... 11 2.4 Breakdown by economic functions ......................................................................... 14 3. Shadow banking risks and interconnectedness........................................................ 20 3.1 Shadow banking risks.............................................................................................. 20 3.2 Interconnectedness between banks and other financial intermediaries................... 26 4. Broader macro picture of all non-bank financial intermediation............................. 33 4.1 Insurance Companies and Pension Funds................................................................ 34 4.2 Other Financial Intermediaries (OFIs)..................................................................... 34 5. Credit and lending patterns...................................................................................... 42 5.1 Credit assets............................................................................................................. 42 5.2 Lending .................................................................................................................... 44 Annex 1: Exclusion of OFI entity types from shadow banking .............................................. 45 Annex 2: The non-bank financial sector in Ireland ................................................................. 48 Annex 3: FSB Regional Consultative Group for the Americas second report on shadow banking .................................................................................................................... 53 Annex 4: Share of total financial assets by jurisdiction .......................................................... 57
Executive summary The shadow banking system can broadly be described as credit intermediation involving entities and activities outside of the regular banking system. Intermediating credit through non-bank channels can have important advantages and contributes to the financing of the real economy, but such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions(e.g. maturity and liquidity transformation, and leverage)and when their interconnectedness with the regular banking system is strong Appropriate monitoring of shadow banking and the application of appropriate policy responses, where necessary, helps to mitigate the build-up of such systemic risks his report presents the results of the fifth annual monitoring exercise using data as of end 2014 for 26 jurisdictions, including Ireland for the first time, and the euro area as a whole, which together account for about 80% of global GDP and 90% of global financial system assets This years report introduces an enhancement to the monitoring methodology as a further step towards narrowing the focus to those parts of non-bank credit intermediation where shadow banking risks such as maturity transformation, liquidity transformation or leverage may occur A new activity-based"economic function" measure of shadow banking has been introduced, based on the high-level policy framework published by the FSB in August 2013 and described in an annex of last year's Global Shadow Banking Monitoring Report. In order to ensure a certain degree of consistency in reporting, all authorities were guided to report non-bank credit intermediation if such activity was considered to give rise to shadow banking risks in at least some jurisdictions. As a result, the narrow measure presented in this year's report may overestimate the degree to which non-bank credit intermediation gives rise to systemic risks Since this was the first time that many jurisdictions took part in the assessment and this remains a work in progress, FSB members will continue to deepen their understanding of shadow banking and any potential risks through greater data availability and information- sharing. As such, the narrow measure of shadow banking may be subject to some degree of change in future reports I Some authorities and market participants prefer to use other terms such as"market-based financing "instead of"shadow banking". The use of the term"shadow banking"is not intended to cast a pejorative tone on this system of credit intermediation. However, the FSB is using the term"shadow banking" as it is the most commonly employed and, in particular, has been used in previous G20 communications 2Previousshadowbankingmonitoringreportscanbefoundathttp://www.fsborg/publications/r141030.pdf, ttp//www.fsborg/publications/r131114.pdf,http://www.fsb.org/wp-content/uploads/r121118c.pdf,and http://www.fsborg/publications/r111027a.pdf 3 These figures, which apply to the 20+EA-group(see Footnote 4), were calculated from the statistical appendix of the IMF's Global Financial Stability Review, April 2015 4 Two samples are presented in this report. The first sample, which for ease of reference we denote the 26-group, is comprised of 26 reporting jurisdictions (including six individual euro area countries). The second sample, denoted 20+EA-group, comprises 20 individual non-euro area jurisdictions and the euro area aggregate. The 26-group is more ranular in terms of sector-level data and is therefore used to calculate the narrow measure of shadow banking based on economic functions(Section 2). The 20+EA-group has a wider scope in terms of jurisdiction coverage and is used to calculate the broad measure of non-bank financial intermediation(in most of Section 4) There were also cases in which authorities considered types of financial intermediation in their jurisdictions to be sufficiently distinct to warrant exclusion from the narrow measure. Annex I provides a review of the material exclusions made by authorities and authorities rationale for such exclusions
1 Executive summary The shadow banking system can broadly be described as credit intermediation involving entities and activities outside of the regular banking system.1 Intermediating credit through non-bank channels can have important advantages and contributes to the financing of the real economy, but such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions (e.g. maturity and liquidity transformation, and leverage) and when their interconnectedness with the regular banking system is strong. Appropriate monitoring of shadow banking and the application of appropriate policy responses, where necessary, helps to mitigate the build-up of such systemic risks. This report presents the results of the fifth annual monitoring exercise using data as of end- 2014 for 26 jurisdictions, including Ireland for the first time, and the euro area as a whole, which together account for about 80% of global GDP and 90% of global financial system assets.2,3,4 This year’s report introduces an enhancement to the monitoring methodology as a further step towards narrowing the focus to those parts of non-bank credit intermediation where shadow banking risks such as maturity transformation, liquidity transformation or leverage may occur. A new activity-based “economic function” measure of shadow banking has been introduced, based on the high-level policy framework published by the FSB in August 2013 and described in an annex of last year’s Global Shadow Banking Monitoring Report. In order to ensure a certain degree of consistency in reporting, all authorities were guided to report non-bank credit intermediation if such activity was considered to give rise to shadow banking risks in at least some jurisdictions. 5 As a result, the narrow measure presented in this year’s report may overestimate the degree to which non-bank credit intermediation gives rise to systemic risks. Since this was the first time that many jurisdictions took part in the assessment and this remains a work in progress, FSB members will continue to deepen their understanding of shadow banking and any potential risks through greater data availability and informationsharing. As such, the narrow measure of shadow banking may be subject to some degree of change in future reports. 1 Some authorities and market participants prefer to use other terms such as “market-based financing” instead of “shadow banking”. The use of the term “shadow banking” is not intended to cast a pejorative tone on this system of credit intermediation. However, the FSB is using the term “shadow banking” as it is the most commonly employed and, in particular, has been used in previous G20 communications. 2 Previous shadow banking monitoring reports can be found at: http://www.fsb.org/publications/r_141030.pdf; http://www.fsb.org/publications/r_131114.pdf; http://www.fsb.org/wp-content/uploads/r_121118c.pdf, and http://www.fsb.org/publications/r_111027a.pdf. 3 These figures, which apply to the 20+EA-group (see Footnote 4), were calculated from the statistical appendix of the IMF’s Global Financial Stability Review, April 2015. 4 Two samples are presented in this report. The first sample, which for ease of reference we denote the 26-group, is comprised of 26 reporting jurisdictions (including six individual euro area countries). The second sample, denoted 20+EA-group, comprises 20 individual non-euro area jurisdictions and the euro area aggregate. The 26-group is more granular in terms of sector-level data and is therefore used to calculate the narrow measure of shadow banking based on economic functions (Section 2). The 20+EA-group has a wider scope in terms of jurisdiction coverage and is used to calculate the broad measure of non-bank financial intermediation (in most of Section 4). 5 There were also cases in which authorities considered types of financial intermediation in their jurisdictions to be sufficiently distinct to warrant exclusion from the narrow measure. Annex 1 provides a review of the material exclusions made by authorities and authorities’ rationale for such exclusions
The Narrow measure Based on a new methodology for assessing non-bank financial entities and activities by "economic functions"introduced this year, the narrow measure of global shadow banking that may pose financial stability risks amounted to $36 trillion in 2014 for the 26 participating jurisdictions. This is equivalent to 59% of GDP of participating jurisdictions, and 12% of financial system assets, and has grown moderately over the past several years More than 80% of global shadow banking assets reside in a subset of advanced economies in North America, Asia and northern europe The new classification by economic functions shows that credit intermediation associated with collective investment vehicles with features that make them susceptible to runs (e.g. money market funds(MMFs), hedge funds and other investment funds) represents 60% of the narrow measure of shadow banking. It has grown more than 10% on average over the past four years. By contrast, the level of securitisation-based credit intermediation -among the key contributors to the financial crisis-has fallen in recent years At the aggregate level, interconnectedness between the banking and the non-bank financial system, excluding those OFIs that are prudentially consolidated into banking groups, continues to decrease from its pre-crisis peak. However, in some jurisdictions, OFls' credit and funding exposures to banking systems are reported to be quite high and merit further assessment as to the extent of concentration of exposures and underlying risks The measurement of shadow banking risks- including leverage, liquidity and maturity transformation, and imperfect credit risk transfer- continues to face challenges in data availability. The FSB held a workshop for participating jurisdictions to assess economic classifications, associated risks and the availability of policy tools to address and mitigate material vulnerabilities to the financial system he broad measure An aggregate"MUNFI measure of the assets of other financial intermediaries(OFIs), pension funds and insurance companies grew by 9%to $137 trillion over the past year and now represents about 40% of total financial system assets in 20 jurisdictions and the euro area. In aggregate, the insurance company, pension fund and OFI sectors all grew in 2014, while banking system assets fell slightly in US dollar terms Based on assets of OFls alone, which have been the main focus of last years report, (i.e. excluding pension funds and insurance companies), non-bank financial intermediation of the 20 jurisdictions and the euro area rose $1. 6 trillion to $80 trillion in 2014. This growth was due to a combination of higher equity valuations and a substantial increase in non-bank credit intermediation, largely from capital markets The FSBs Monitoring Universe of Non-bank F Intermediation(MUNFD) includes OFIs, pension funds and insurance companies. The 20 jurisdictions and area cover a larger sample of jurisdictions than the 26 jurisdictions for which the narrow measure was cal see Footnote 4
2 The Narrow Measure • Based on a new methodology for assessing non-bank financial entities and activities by “economic functions” introduced this year, the narrow measure of global shadow banking that may pose financial stability risks amounted to $36 trillion in 2014 for the 26 participating jurisdictions. This is equivalent to 59% of GDP of participating jurisdictions, and 12% of financial system assets, and has grown moderately over the past several years. • More than 80% of global shadow banking assets reside in a subset of advanced economies in North America, Asia and northern Europe. • The new classification by economic functions shows that credit intermediation associated with collective investment vehicles with features that make them susceptible to runs (e.g. money market funds (MMFs), hedge funds and other investment funds) represents 60% of the narrow measure of shadow banking. It has grown more than 10% on average over the past four years. By contrast, the level of securitisation-based credit intermediation – among the key contributors to the financial crisis – has fallen in recent years. • At the aggregate level, interconnectedness between the banking and the non-bank financial system, excluding those OFIs that are prudentially consolidated into banking groups, continues to decrease from its pre-crisis peak. However, in some jurisdictions, OFIs’ credit and funding exposures to banking systems are reported to be quite high and merit further assessment as to the extent of concentration of exposures and underlying risks • The measurement of shadow banking risks – including leverage, liquidity and maturity transformation, and imperfect credit risk transfer – continues to face challenges in data availability. The FSB held a workshop for participating jurisdictions to assess economic classifications, associated risks and the availability of policy tools to address and mitigate material vulnerabilities to the financial system. The Broad Measure • An aggregate “MUNFI” measure of the assets of other financial intermediaries (OFIs), pension funds and insurance companies grew by 9% to $137 trillion over the past year, and now represents about 40% of total financial system assets in 20 jurisdictions and the euro area.6 In aggregate, the insurance company, pension fund and OFI sectors all grew in 2014, while banking system assets fell slightly in US dollar terms. • Based on assets of OFIs alone, which have been the main focus of last year’s report, (i.e. excluding pension funds and insurance companies), non-bank financial intermediation of the 20 jurisdictions and the euro area rose $1.6 trillion to $80 trillion in 2014. This growth was due to a combination of higher equity valuations and a substantial increase in non-bank credit intermediation, largely from capital markets. 6 The FSB’s Monitoring Universe of Non-bank Financial Intermediation (MUNFI) includes OFIs, pension funds and insurance companies. The 20 jurisdictions and the euro area cover a larger sample of jurisdictions than the 26 jurisdictions for which the narrow measure was calculated – see Footnote 4