by Brian T. Lynch, MSW
|A Caribean Island Resort|
In other words, global shadow banking and finance networks have grown so large and powerful that they pose a threat to the whole nation-based international banking and finance system.
The Financial Stability Board says they are responsible for:
· Preparing annual reports on the implementation of reforms and their effects
· Coordinating financial sector policies
· Conducting outreach activities [To WHOM?]
· Building resilient financial institutions
· Addressing SIFIs [Systemically Important Financial Institutions]
· Making the derivates market safer [Which was the epicenter of the financial collapse in 2007]
· Enhancing the resilience of non-bank financial intermediation [NBFI]
· Formulating additional policies on specific areas of the global financial market
· Preparing progress reports to the G20
· Analyzing the effects of reforms
So, this is an autonomous international agency reporting to the G20, yet it is independent of the G20 or any other democratically elected government authority. It analyzes and proposes and monitors non-government enforced regulations of cross-border financial interactions between traditional international banking institutions and the global shadow banking institutions. It exists to keep the global economy on an even keel, and it prepares reports. Here is their 2018 report on the health and extent of global, non-standard financial institutions. Global Monitoring Report on Non-Bank Financial Intermediation 2018
I first came across this term looking for information about a high-end tourist destination, a small, self-governing island in the Caribean, one of many such places. In addition to high-end tourism, its economy is also dependent on offshore financial services. Among the financial services listed on the internet about the Island’s economy is the ‘financial intermediation sector. (The what, I ask? )
Section #4 of the FSB report explains that financial intermediation: “… focuses on those parts of non-bank financial intermediation where bank-like financial stability risks may arise. The narrow measure of non-bank financial intermediation, which reflects an activity-based “economic function” assessment of risks, grew by 8.5% to $51.6 trillion in 2017, at a slightly slower pace than 2011-16. The narrow measure of non-bank financial intermediation, which reflects an activity-based “economic function” assessment of risks, grew by 8.5% to $51.6 trillion in 2017, at a slightly slower pace than 2011-16.
Since 2011, the Cayman Islands, China, Ireland, and Luxembourg together have accounted for over two-thirds of the dollar value increase. The narrow measure represents 14% of total global financial assets. Key components include:
· Collective investment vehicles (CIVs)
· Non-bank financial entities engaging in loan provision that is dependent on short-term funding
· Market intermediaries that depend on short-term funding or secured funding
· Securitisation-based credit intermediation
Section 2 provides an overview of, “Other Financial Intermediaries” (OFIs) aggregate, which includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries. These alt-financial entities grew by 7.6% in 2017. OFIs’ growth exceeded that of banks, insurance corporations, and pension funds. With $116.6 trillion, OFI assets represent 30.5% of total global financial assets, the largest share on record.”
These invisible, unaccountable entities are apparently a go-to source for loans by the global banks and nation-based financial institutions. In November 2010, the FSB defined shadow banking as “credit intermediation involving entities and activities (fully or partly) outside of the regular banking system”
So, what is really going on here?
This whole development may be more than a financial risk to the global economy. It may be a burgeoning threat to the sovereignty of nations and the sanctity of self-governing democracies everywhere. It is a development worthy of our attention and vigilance.
Read the full FSB report here:https://www.fsb.org/wp-content/uploads/P040219.pdf