Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

67 Trillion Reasons to be Cheerful, the Shadow Banking System

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

By: Submissions


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 (

Co-Author: Alternative Capital Raising – Business Funding in the New Capital Markets (

© 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.

© 2005-2015 - 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

Biggest Debt Bomb in History