FCIC’s ‘Shadow Banking’ Report Now Available, Open To Public Comment Through June 18

“Shadow banking” refers to bank‐like financial activities that are conducted outside the traditional commercial banking system, many of which are unregulated or lightly regulated. Within this broad definition are investment banks, finance companies, money market funds, hedge funds, special purpose entities, and other vehicles that aggregate and hold financial assets. These entities are critical players in the markets for securitized products, structured products, commercial paper, asset‐backed commercial paper, repurchase agreements, and derivatives.

At their peaks in 2007 and 2008, shadow banking‐related markets financed substantial economic activity. The U.S. repurchase agreements (“repo”) market was over $4.5 trillion at its peak, asset‐backed commercial paper (“ABCP”) was roughly $1.2 trillion, financial commercial paper (“CP”) was roughly $800 billion, nonfinancial CP was roughly $220 billion, and securities lending was roughly $600 billion. (As a comparison, commercial banks’ deposits were $7.3 trillion at the end of 2008.) Shadow banking entities also existed outside the United States. Those linked to major European banks played an important role in the crisis.

This week, the Financial Crisis Inquiry Commission (“FCIC”) made a preliminary staff report on shadow banking available to the public. It's well worth reading. Comments can be submitted through the FCIC’s website, www.fcic.gov, through June 18.