Shadow banking assets grow to record global share as regulators urged to remain vigilant to risks

Shadow banks have amassed their largest ever share of global financial assets as the Financial Stability Board urged regulators to “remain vigilant” to financial stability risks.

The FSB’s annual monitoring report revealed that non-banks’ assets grew to $116.6 trillion (£89 trillion) in 2017, representing 30.5 per cent of global financial assets.

Non-banks, the term now used by the FSB as its moves away from the phrase 'shadow banking', include all financial institutions that not central banks, banks, insurance corporations or pension funds.

The global finance regulator said information collection had to improve to help identify financial stability risk.

“Non-banks play a growing role in the financial system, and their share of the financial system is the largest on record,” Klaas Knot, chair of the FSB standing committee on assessment of vulnerabilities, said.

“They are becoming important players in areas where banks traditionally played dominant roles,” he added.

Knot called for authorities to “remain vigilant” in addressing financial stability risks as the non-bank share of the world’s assets grows.

The FSB called for enhanced data collection and improved risk analysis as well as appropriate policy measures to be implemented.

Collective investment vehicles drove the growth of non-bank financial intermediation in 2017, despite growth slowing from the pace of 2011-16.

The FSB also urged regulators to keep a close eye on risky corporate loans, adding to concerns raised by the Bank of England in recent months.

The bank drew parallels with the run up to the 2008 global financial crisis in its warning at the end of last year before allaying fears last month by saying the system was better equipped.

In its report, the FSB said leveraged loan issuance had increased and the debt-to-earnings ratio of corporate borrowers had soared to level higher than pre-crisis.

“Given these developments, the complexity and lack of transparency of the leveraged loan market, as well as the potential of spillovers to other markets, it is important to consider enhancing data/information collection so as to have clearer view of the market and its risks.”