We increasingly hear about shadow banking in international financial environments. But what is shadow banking ? This is an expression coined by the Financial Times and the World Bank. This expression indicates the tools of the financial world completely different from those that are normally used in traditional channels. If we want to list these tools specifically, we should talk about Private equity, Venture Capital and crowdfunding. Finally we could talk about what are called minibonds and even public funds such as European Union funds, tax reliefs and guarantees of the same and confidants as well.
It is useful to give a brief definition of the above tools:
- Private Equity : is a financial asset through which an institutional investor takes shares in a company defined as a target (ie objective), this takes place both by acquiring existing shares from third parties and by subscribing to newly issued shares by bringing in new capital within the target.
- Venture Capital : Venture capital is the contribution of venture capital by an investor to finance the start-up or growth of an activity in sectors with high development potential. A venture capital fund invests primarily in financial capital in companies that are too risky for standard capital markets or bank loans.
- Crowdfunding : or collective financing in Italian, is a collaborative process of a group of people who use their money in common to support the efforts of people and organizations. It is a bottom-up micro-financing practice that mobilizes people and resources. The term takes its origin from crowdsourcing, a process of collective development of a product.
Thanks to these innovative and unconventional financial instruments, there is a great deal of money that, surprisingly, and unlike what can be said of the traditional banking system, continues to grow.
Extent of the phenomenon
According to the authoritative Daniele Nouy, the president of the EB Banking Supervision Council, in the Eurozone alone, these financial activities that, it is good to specify it, are not currently regulated, have grown exponentially since the beginning of the crisis. According to the data collected, but not definitive, the total amount of capital has gone from the beginning of the crisis to today, from 9,000 a 19,000 billion USD.
To better understand the real dimensions of the phenomenon it is sufficient to think that the 130 banks of the Eurozone that have been involved in the recent and discussed stress tests by the European central bank have to their credit 23,000 billion USD.
As Daniele Nouy explained, ” the traditional banking system has produced a massive credit crunch, which was followed by shadow banking which increased its role in financing the real economy and also ended up contributing to the financing of regulated banks with volumes that are around around 88 billion active credit lines “.
And so, while the official banking system is in crisis and is sheltered by cutting activities in order to guarantee greater financial stability, there is a shadow finance that does not stop growing on an international scale. The usual paradoxes of the world economy.
Those who cannot access the shadow system often cannot access earnings. This alternative financial construction now represents, in the United States, about the third part of the total systemic risk of Made in the USA. Europe, on the other hand, is still strongly linked to the traditional banking system. A completely separate discussion is what it concerns the China where shadow banking accounts for around 40% of annual GDP.