Skip to comments.Hedge fund chiefs and former bankers enter the shadows close
Posted on 06/20/2014 5:15:52 PM PDT by Lorianne
In the six years since the financial crisis, the financial services world has seen all kinds of new institutions take over lending deals and clients that were once the domain of traditional banks. There has also been a parallel transformation: the mutation of bankers into shadow bankers, writes Patrick Jenkins in London. The bosses of many shadow banks hedge funds, private equity and debt funds, tax-efficient business development companies and peer-to-peer lenders seem increasingly to have been drawn from the upper ranks of the big traditional lenders.
Many bankers have become disillusioned with the old ways of doing things, demotivated by weak market conditions and shrinking ambitions, and frustrated by a mountain of new regulations. The freer world of shadow banking offers welcome liberation. It also presents an opportunity for those with experience in banking because they know where the business opportunities and the regulatory loopholes lie. But if the migration of bankers into shadow banking is a clear pattern in western markets, elsewhere it is harder to make such generalisations. Anecdotal evidence in China, one of the biggest and most concerning shadow banking markets, suggests a far more eclectic heritage at the helm of big non-bank lenders, a development that adds to the potential risks..
(Excerpt) Read more at ft.com ...
Definition of 'Shadow Banking System'
The financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions.
Examples of intermediaries not subject to regulation include hedge funds, unlisted derivatives and other unlisted instruments. Examples of unregulated activities by regulated institutions include credit default swaps.
The shadow banking system has escaped regulation primarily because it did not accept traditional bank deposits. As a result, many of the institutions and instruments were able to employ higher market, credit and liquidity risks, and did not have capital requirements commensurate with those risks. Subsequent to the sub-prime meltdown in 2008, the activities of the shadow banking system came under increasing scrutiny and regulations.