From the Telegraph via Yahoo Finance by Ambrose Evans-Pritchard about whom we noted in 2010:
...Funny is important if you're doing the Angel of Death schtick. Here's our thinking:
Unlike his fellow gloomster David Rosenberg, Société Générale's Albert Edwards amuses* as he forecasts gloom, doom and despair. They both bow to the master, the Telegraph's international business editor, Ambrose Evans-Pritchard whose writing I once described as a "continuum that ranges from morose to suicidal.
Here he is at his despondent best...
And Tue, Apr 4, 2023:
Shadow banking is the dog that has not barked during the latest global spasm of financial stress. This is very fortunate, especially for small countries such as Ireland that have bet the farm on this industry.
If that vast nexus of international contracts and opaque leverage starts to unravel, there are no obvious circuit breakers to stop a dangerous chain reaction.
These shadow entities borrow short in fickle capital markets to lend long, or to buy illiquid securities, or to invest in real estate. They do so on a galactic scale with endemic mismatches of maturity. By definition, this is mostly beyond the oversight of regulators.
They behave like banks but cannot tap the emergency window of major central banks in a liquidity crisis. There is no lender of last resort standing behind them. Nor are they protected from financial runs by government deposit insurance. This is a recipe for a self-feeding doom loop when things go wrong.
“As we saw in 2008 and 2020, runs and fire sales can spread like a contagion. The financial stability risks posed by money market and open-end funds have not been sufficiently addressed,” warned US Treasury Secretary Janet Yellen last Thursday.
The US narrowly averted disaster at the onset of the pandemic in March 2020 when its shadow banks seized up.
“Extraordinary intervention by the government was necessary to stabilise these distressed markets. Put simply, the Covid shock reaffirmed the significance of structural vulnerabilities in non-banks,” she said.
Her tone has changed. Five years ago, she told a forum in London that we would never see another financial crisis “in our lifetimes”. The collapse of Silicon Valley Bank and the rescue of First Republic under her watch has been a sobering check to regulatory hubris.
In what looks like coordinated rhetoric, the European Central Bank’s Luis de Guindos issued a parallel warning last week, flagging the shadow banks as a potential “source of problems for the whole financial system”, though he was careful not to finger any one eurozone country.
The regulators are faced with the unintended consequence of their own actions. By binding banks in a suffocating straightjacket for the last 14 years – by the wrong mechanism as we now learn, since Credit Suisse came close to collapse with super-safe capital ratios – they have pushed lending off books and have helped create what may or may not prove to be a systemic monster.
The Basel-based Financial Stability Board says the shadow nexus – or non-bank financial intermediaries – has mushroomed to $239 trillion and displaced traditional lenders ($183 trillion) as the main source of global finance. Much of this is benign and helps to keep the global economy growing.
The “core” shadow component that keeps regulators awake at night amounts to $67 trillion. These are investment vehicles and funds that pose “bank-like financial stability risks” but without guardrails. The FSB says they are susceptible to “margin call dynamics” and act as “amplifiers of liquidity stress”....
....MUCH MORE
Related, March 22: "ECB warns that shadow banking could trigger next financial crisis" and the outro therefrom:
...Raising the question: How exposed to the shadow bankers was Credit Suisse? And who else has big exposure?
On the first question, Myret Zaki, who has looked at shadow banking a few times, seems to think the answer is "A fair amount.":
L’arbre Credit Suisse cache la forêt du «shadow banking»
And a few years ago:
And December 2022:And a few days ago:
China's $3 Trillion Shadow Banking Industry Pivots Away From Property Developers
And November 2022:'
Systemic Financial Crisis: "The Illusion of Control"
And me? I'm going to read up on Creditanstalt which failed in May 1931. From Kindleberger's "World in Depression: 1929-1939":
In 1929, the Bodenkreditanstalt was fused overnight with the Creditanstalt. The Bodenkreditanstalt brought to the Creditanstalt large loans to industrial concerns which could be maintained only by the device of ignoring market values...Hmmm, sounds familiar.
