China powers growth in global shadow banking

The world's shadow banking sector grew US$5 trillion last year to US$71 trillion, helped by a 42 per cent expansion in China, according to the latest annual figures from the Financial Stability Board.

Shadow banking covers more lightly regulated areas of finance that includes bank-like activities such as borrowing and lending that take place outside banks. These include the repurchase agreement market, securities lending, real estate, hedge funds, money market funds and securitisation.

Shadow banking became a pejorative term because of its role in the 2007-09 global financial crisis. But the tone has changed because of the need for alternative sources of money to fund economic growth while banks focus on repairing balance sheets.

But policymakers are also worried that as mainstream banks become more regulated in the wake of the crisis, some of their more risky activities could shift to the shadow banking sector.

The third annual set of data from the FSB, the regulatory task force for the Group of 20 economies, provides a statistical underpinning to new global rules for shadow banks that are now being finalised.

The United States accounts for US$26 trillion or 37 per cent of the US$71 trillion total, followed by the euro zone at US$22 trillion, Britain at US$9 trillion and Japan at US$4 trillion.