Hedge funds, special-purpose entities and money market funds have all benefited from the low interest rates offered by central banks.
Banks increasingly used outside companies to handle all the deals that were too risky for them, so that they wouldn't appear on their books. In this manner, shadow banks and regular banks collaborated to build a castle in the air made up of loans.
Even the question of who should handle data collection in the future has triggered a dispute between politicians and regulators. It isn't easy to bring together opinions from the 20 countries whose governments meet regularly at the G-20 summits of leading industrial and emerging economies. To get the mammoth problem under control, FSB staff members have compiled a "world map of shadow banks", as [FSB secretary general] Andresen calls the puzzle-like project.
Even a regulator quietly admits that the most dangerous loan packages, which [hedge fund manager] Féry buys from banks, among others, are in better hands at a hedge fund, because the deposits of bank customers are not being put at risk. "Those are the good sides of the shadow banking system." Féry also believes that small and mid-sized companies in particular depend on his services because the banking crisis has forced them to "struggle for financing".
Using similar arguments, lobbyists from other areas of finance have already managed to keep their customers largely out of the discussion. For example, the FSB is not treating so-called private equity firms as shadow banks yet. Their classic business consists of borrowing money from banks and taking over companies, and then burdening those companies with the debt.
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