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Shadow banking performs important functions in the financial system. For example, it creates additional sources of funding and offers investors alternatives to bank deposits. But it can also pose potential threats to long-term financial stability.
The Financial Stability Board (FSB) has roughly estimated the size of the global shadow banking system at around €46 trillion in 2010, up from €21 trillion in 2002. This represents 25-30 per cent of the total financial system, and half the size of bank assets. In Europe, the proportion of these other financial intermediaries' assets is lower than the global average (13 per cent in UK, and 5 per cent in Germany, for example, compared to an estimated 35-40 per cent in the United States). However, according to FSB estimates, the share of these assets in Europe has sharply increased in recent years, while it is falling elsewhere, including in the US. Shadow banking is therefore a growing concern for Europe's financial system.
Deadline for comment is 1 June, 2012.