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4th Dec 2022

EU shadow banking assets worth €17 trillion

  • Shadow banking system in the UK had €7 trillion in assets in 2011. (Photo: J. A. Alcaide)

The eurozone has the world's second largest shadow banking system after the United States, with assets worth some €17.2 trillion in 2011.

"The US' share of the global shadow banking system has declined from 44 percent in 2005 to 35 percent in 2011. This decline has been mirrored mostly by an increase in the shares of the UK and the euro area," said the Basel, Swizterland-based Financial Stability Board (FSB) in a report released on Sunday (18 November).

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The UK takes the largest share in Europe with €7 trillion, while the US, in comparison, has €18 trillion.

The FSB, which monitors international financial sector policies, says such credit transactions "made outside the normal banking system" have continued to increase in size after the 2008-11 financial crisis.

The transactions are often unregulated and present higher risks when compared to traditional banking activities.

Companies involved in shadow banking specialise in anything from capital venture, securities markets, pension and mutual funds.

In some cases, they represent a significant share of financial activities when compared to standard commercial banks.

Also known as non-bank financial institutions (NBFIs), shadow banking companies compete with the commercial banks in areas like providing credit to small businesses.

“The Netherlands (45 percent) and the US (35 percent) are the two jurisdictions where NBFIs are the largest sector relative to other financial institutions in their systems," says the FSB.

The NBFIs in the eurozone, for its part, is around 30 percent.

The assets generated from such institutions are large. For the eurozone, they represent 111 percent of its total GDP.

In the UK, it is the equivalent of 370 percent of its GDP, while the Netherlands tops out at 490 percent.

"Part of this concentration can be explained by the fact that these jurisdictions are significant international financial centres that host activities of foreign-owned institutions," notes the FSB.

Overall assets in the global shadow banking system had seen a rapid increase just before the crisis, rising from €20 trillion in 2002 to €48.5 trillion in 2007.

The total then declined to €46 trillion in 2008 "but increased subsequently to reach €52.5 trillion in 2011."

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