Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Post Yellen = Market Confusion - 28th Aug 16
Theresa May Instructs Police, NHS Gp's, Public Sector To Stop Racial Discrimination in Service Delivery - 28th Aug 16
Ignore Yellen and Buy the Dip in Precious Metals - 27th Aug 16
SPX Downtrend Should be Underway - 27th Aug 16
Unraveling the Secular Economic Stagnation Story - 27th Aug 16
The Precious Metals Sector and the Fed. . . - 27th Aug 16
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

67 Trillion Reasons to be Cheerful, the Shadow Banking System

Stock-Markets / Global Financial System Dec 17, 2012 - 03:14 PM GMT

By: Submissions

Stock-Markets

David Rose writes: The much-maligned ‘shadow banking’ sector has so far been accused of causing the global financial crisis, restricting access to capital and, probably, global warming too.  But maybe the time has come to bring ‘shadow banking’ out of the shadows and into the light, so that the discussion can become a little more constructive. 


The Financial Stability Board’s (FSB) Global shadow Banking Monitoring Report 2012 shows that ‘shadow banking’ “…grew rapidly before the crisis, rising from $26 trillion in 2002 to $62 trillion in 2007”.  The 2011 count was $67 trillion.  That’s $67 trillion free of banks who cannot lend because they are trying to rebuild their capital bases, and $67 trillion free to invest in worthwhile projects by those who actually own the money.  Indeed, 67 trillion reasons to be cheerful and positive about ‘shadow banking’ or, to use the name given to it by those of us active in the market, ‘alternative capital’.

The reality behind this growth of the alternative capital 2002 and 2007 is not some kind of conspiracy, which appears to be implied in the FSB report, but the flight of capital from mainstream banks into hedge funds, asset managers and others which comprise the alternative capital sector.  This migration of capital took place over the decade before the crisis manifested itself in 2008. 

The people who own this money, wealthy individuals comprised mostly of successful entrepreneurs, could see what was coming long before the collapse of 2008, and began moving it out of the mainstream banking network in order to separate it from the carnage they so accurately anticipated.   A useful analogy would be the flight of wildlife as it heads for the hills before a tsunami arrives.  The wealthy share similar instincts, and responded accordingly. 

In short, these unprecedented global capital flows resulted in a net reduction of balances for the established banking network as it took refuge in hedge funds, family offices, asset managers, investment consortia, syndicates and a host of other vehicles.  It is this private money that underpins the rapidly emerging alternative capital market. 

The reality is that the banking crisis was brought about by the banks’ own hubris – with some notable exceptions.  Many of us saw it coming a decade before it actually happened, with the catalyst being the creation of mountainous debt among those who stood no chance of repaying it.  A child could have seen that it was unsustainable.  How strange (and sad) that the participating banks themselves, media commentators, battalions of highly paid economists and the credit rating agencies didn’t see it coming as well.  The OECD mentioned the ‘global financial crisis’ in research produced for their 2006 Pensions Report, which means that it was already by then an established part of their thinking.  

Alternative capital is now a force to be reckoned with and, in its own anarchic way, starting to show some signs of structure, to a point where it could actually become a tangible and credible permanent alternative to established banking and financing channels.  Alternative capital being fed into the markets through these much maligned ‘shadow banking’ channels is picking up where traditional mainstream banks have failed.  Perhaps it is time to start regarding this sector as part of the solution, as opposed to part of the problem.

By: David Rose, CEO, Equility Capital Ltd (www.equilitycapital.com)

Co-Author: Alternative Capital Raising – Business Funding in the New Capital Markets (www.alternativecapitalraising.com)

© 2012 Copyright David Rose - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife