Shadow banking is double the size of all conventional banking.
On the 18th of November, Gillian Tett, award-winning journalist at the Financial Times published a road map to the $20 Trillion shadow banking system. [NY Fed source pdf here]
Examples of shadow banks are finance companies, commercial paper companies, structured investment vehicles, credit hedge funds, money market mutual funds, securities lenders, and government-sponsored enterprises.
This week, a senior banker friend gave me a poster entitled The Shadow Banking System. It was shocking stuff.
The graphic depicts how money goes round the modern world. Most of the poster is dominated by shadow banking systems. These flows are so extraordinarily complex that hundreds of boxes create a diagram comparable to the circuit board.
It should be mandatory reading for bankers, regulators, politicians and investors today, a reminder of clueless investors, regulators and rating agencies.
“After all, during the credit boom, there was plenty of research being conducted into the financial world; but I never saw anything remotely comparable to this road map.”
