System-wide market risk stemming from the financial services industry hasn’t conclusively declined since the financial crisis that started more than a decade ago, Fitch Ratings warns in a new report.
Specifically, Fitch pointed to the continued rise of shadow banking as a potential culprit in new systemic risk.
Shadow banking is credit lending and the exchange of liquidity that occurs outside of mainstay financial institutions such as banks and insurance companies.
This darker sector of the financial system has been growing noticeably since the financial crisis, according to the report, “Shadow Banking Implications for Financial Stability.”
Global shadow banking assets reached $52 trillion as of fiscal year-end 2017, up 8.5% year over year, the report noted, citing the G-20 Financial Stability Board. That represents 13.5% of total financial assets.
Of that, the U.S. had almost $15 trillion of these assets, or almost 29% globally, a figure that has stayed relatively flat since 2010. Yet China, with a smaller slice at $8.3 trillion, has filed a compound annual growth rate of almost 60% since 2010 in shadow banking, according to the report.
Chinese regulators, though, increased their oversight over shadow banking in 2018 out of concern, focusing primarily on wealth management and trust products, Fitch said.