Financial regulators are sounding the alarm about the shadow banking industry, which has grown to $36 trillion worldwide, according to a new report from the Financial Stability Board.

As the name implies, shadow banks are financial intermediaries that loan money and perform services attributed to traditional banks, but operate outside the regulations of the banking system. Examples include asset-management organizations and private equity corporations that have branched out into private lending.

Financial industry watchdogs worry unsupervised shadow banking organizations will affect the commercial banking sector, i.e., the “too-big-to-fail” banks that often underwrite the high-risk activity of investment banks.

The Financial Stability Board, an international body established in 2009 to address weaknesses in the global financial system, has been working to bring transparency to shadow banking activities, and has created a roadmap toward strengthened oversight and regulation of the system.

In a statement accompanying the report, FSB Chair Mark Carney said: “Non-bank financing is a welcome additional source of credit to the real economy. The FSB’s efforts to transform shadow banking into resilient market-based finance, through enhanced vigilance and mitigating financial stability risks, will help facilitate sustainable economic growth”.

In a world still jittery from the 2008 financial crisis, shadow banking has become an issue in the U.S. presidential election. Proposing to create a safer divide shadow banks and traditional banking institutions, Democratic candidates Bernie Sanders and Martin O’Malley Want to bring back a the Glass Steagall Act, a law that prevented commercial banks from engaging in investment banking.

The 75-year-old Glass Steagall Act, a banking reform that originated from the Great Depression, was repealed in 1999 to help make the U.S. financial system more competitive on a global scale.

Democratic primary frontrunner Hillary Clinton said she is against reinstating Glass Steagall and instead has called for strengthened oversight of the shadow banking system.

To download the FSB report, click on this link:

The post Shadow Banking Industry Grows to $36 Trillion Worldwide appeared first on Outsourcing Insights.

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