And by the little jewelry shop we’ll stop and linger
In most parts of the world, the banking system is closely regulated and monitored by central banks and other government agencies. That’s just as it should be, you might think.
But banks have a way round this kind of regulation. For the last decade or so, it has become common practice for banks to do business in ways that don’t show up on conventional balance sheets. Before the 2008 financial crisis, for example, many investment banks financed mortgages in this way. To all intents and purposes, these transactions are invisible to regulators.
This so-called shadow banking system is huge and important. Indeed, many economists blame activities that took place in the shadow banking system for the 2008 crash.
Davide Fiaschi, an economist at the University of Pisa in Italy, and a couple of pals reveal […] that the shadow banking system is vastly bigger than anyone had imagined before. And although its size dropped dramatically after the financial crisis in 2008, it has since grown dramatically and is today significantly bigger than it was even then.
