The 75 Trillion Dollar Shadow Banking System Is in Danger of Collapsing

| |

Top Tier Gear USA

financial collapse

Keep an eye on the shadow banking system – it is about to be shaken to the core.

According to the Financial Stability Board, the size of the global shadow banking system has reached an astounding 75 trillion dollars.  It has approximately tripled in size since 2002.  In the U.S. alone, the size of the shadow banking system is approximately 24 trillion dollars.  At this point, shadow banking assets in the United States are even greater than those of conventional banks.  These shadow banks are largely unregulated, but governments around the world have been extremely hesitant to crack down on them because these nonbank lenders have helped fuel economic growth.  But in the end, we will all likely pay a very great price for allowing these exceedingly reckless financial institutions to run wild.

If you are not familiar with the “shadow banking system”, the following is a pretty good definition from investing

The shadow banking system (or shadow financial system) is a network of financial institutions comprised of non-depository banks — e.g., investment banks, structured investment vehicles (SIVs), conduits, hedge funds, non-bank financial institutions and money market funds.

How it works/Example:

Shadow banking institutions generally serve as intermediaries between investors and borrowers, providing credit and capital for investors, institutional investors, and corporations, and profiting from fees and/or from the arbitrage in interest rates.

Because shadow banking institutions don’t receive traditional deposits like a depository bank, they have escaped most regulatory limits and laws imposed on the traditional banking system. Members are able to operate without being subject to regulatory oversight for unregulated activities. An example of an unregulated activity is a credit default swap (CDS).

These institutions are extremely dangerous because they are highly leveraged and they are behaving very recklessly.  They played a major role during the financial crisis of 2008, and even the New York Fed admits that shadow banking has “increased the fragility of the entire financial system”…

The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system. In a market-based financial system, banking and capital market developments are inseparable: Funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Growth in the balance sheets of these intermediaries provides a sense of the availability of credit, while contractions of their balance sheets have tended to precede the onset of financial crises. Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities.

Over the past decade, shadow banking has become a truly worldwide phenomenon, and thus it is a major threat to the entire global financial system.  In China, shadow banking has been growing by leaps and bounds, but this has the authorities deeply concerned.  In fact, according to Bloomberg one top Chinese regulator has referred to shadow banking as a “Ponzi scheme”…

Their growth had caused the man who is now China’s top securities regulator to label the off-balance-sheet products a “Ponzi scheme,” because banks have to sell more each month to pay off those that are maturing.

And what happens to all Ponzi schemes eventually?

In the end, they always collapse.

And when this 75 trillion dollar Ponzi scheme collapses, the global devastation that it will cause will be absolutely unprecedented.

Bond expert Bill Gross, who is intimately familiar with the shadow banking system, has just come out with a major warning about the lack of liquidity in the shadow banking system…

Mutual funds, hedge funds, and ETFs, are part of the “shadow banking system” where these modern “banks” are not required to maintain reserves or even emergency levels of cash. Since they in effect now are the market, a rush for liquidity on the part of the investing public, whether they be individuals in 401Ks or institutional pension funds and insurance companies, would find the “market” selling to itself with the Federal Reserve severely limited in its ability to provide assistance.

As far as shadow banking is concerned, everything is just fine as long as markets just keep going up and up and up.

But once they start falling, the whole system can start falling apart very rapidly.  Here is more from Bill Gross on what might cause a “run on the shadow banks” in the near future…

Long used to the inevitability of capital gains, investors and markets have not been tested during a stretch of time when prices go down and policymakers’ hands are tied to perform their historical function of buyer of last resort. It’s then that liquidity will be tested.

And what might precipitate such a “run on the shadow banks”?

1) A central bank mistake leading to lower bond prices and a stronger dollar.

2) Greece, and if so, the inevitable aftermath of default/restructuring leading to additional concerns for Eurozone peripherals.

3) China – “a riddle wrapped in a mystery, inside an enigma”. It is the “mystery meat” of economic sandwiches – you never know what’s in there. Credit has expanded more rapidly in recent years than any major economy in history, a sure warning sign.

4) Emerging market crisis – dollar denominated debt/overinvestment/commodity orientation – take your pick of potential culprits.

5) Geopolitical risks – too numerous to mention and too sensitive to print.

6) A butterfly’s wing – chaos theory suggests that a small change in “non-linear systems” could result in large changes elsewhere. Call this kooky, but in a levered financial system, small changes can upset the status quo. Keep that butterfly net handy.

Should that moment occur, a cold rather than a hot shower may be an investor’s reward and the view will be something less than “gorgeous”. So what to do? Hold an appropriate amount of cash so that panic selling for you is off the table.

In order to avoid a shadow banking crisis, what we need is for global financial markets to stabilize and to resume their upward trends.

If stocks and bonds start crashing, which is precisely what I have projected will happen during the last half of 2015, the shadow banking system is going to come under an extreme amount of stress.  If the coming global financial crisis is even half as bad as I believe it is going to be, there is no way that the shadow banking system is going to hold up.

So let’s hope that the financial devastation that we have seen so far this week is not a preview of things to come.  The global financial system has been transformed into a delicately balanced pyramid of glass that is not designed to handle turbulent times.  We should have never allowed the shadow banks to run wild like this, but we did, and now in just a short while we are going to get to witness a financial implosion unlike anything the world has ever seen before.

Delivered by The Daily Sheeple

We encourage you to share and republish our reports, analyses, breaking news and videos (Click for details).

Contributed by Michael Snyder of The Economic Collapse.

Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream , The Truth and Economic Collapse Blog.

Wake The Flock Up! Please Share With Sheeple Far & Wide:
  • A good read, thanks. Yes the systemic risk within the financial markets has grown to a critical size. It is so intransperent that no one will see the train in time before it de-rails and wipes out everything.

  • Guillotine_ready

    Thank you Bill Clinton for doing away with Glass-Steagal and allowing banks of all people to speculate with financial life on earth.
    But I am a believer that the fictional world of dollars and cents is not actually the best way to handle production, trade or innovation and profit is the absolute worst motivator for a great many things needed but not profitable to make.
    We should be ready to throw out the laziness of believing that there are so few alternatives left to us. We see what money is actually doing to us, controlling who has access to the things they need, using large amounts of people’s time earning it or trying to so they have less time to create their own goods. And it keeps people enslaved to wage system and busy so they do not find out they are being cheated out of their lives. In other words we can do better than this and this collapse is just the excuse to do away with banking and fictional money creation and manipulation for good.

  • Stuck_in_Ca

    I can’t imagine handing my money to a guy who runs a bank out of his garage.

  • The Watcher
  • BDBinc

    NO I disagree with the article. I am sick of hearing the threat of the banksters collapsing the economy for their own agenda of a NWO.

    This banking system is a fictional , if the trillions in debt and insolvency didn’t say “made up” (didn’t crash instead got extra money from taxpayer/debt slaves) I don’t know what will make you understand its a fictional system.
    It is a debt slavery system that can create money from nothing, lend it into existence, is unregulated and not understood .
    If it crashes it is only because the banking cabal(rothschilds rockefellews etc) want to crash it, it is a fictional and fraudulent banking system.
    As the Watcher commented, the FED reserve is privately owned by these banksters you pay taxes to these private banksters instead of the govt/the corporation creating the money needed without the debt or interest.

    The banking cabal’s desired crash ( create “problem”/crisis) is to usher in a one world currency( “solution”), electronic , no cash ( total control) banks in many places in the world already say they own your deposits and are trying to phase out cash .

    What difference between 75 trillion or 175 trillion dollars?
    Its a fictional bankster system with manipulated numbers, put in place by fraudulent practices .

    • Nexusfast123

      Unfortunately it’s not fictional. You are missing the important point which is that the financial system will impact the physical real system of supply and commerce. If the banking system collapses (interbank lending freezes) then commerce stops. Also the various financial instruments are on the balance sheets of the banks and if they can’t find a counter party they will become a loss and in an instant the banks collapse into insolvency. The only way out is a ‘Jubilee’ as suggested by Professor Paul Keen. This would net out all the useless derivatives.

      • BDBinc

        You are missing the point it is fictional.

        This can be seen with the amount $75 trillion in debt.

        If not $75 Trillion why not $175 Trillion -whats the difference?

        No one regulates the banking cabal. The banking cabal create (and break) nations economies .
        Fraudulent transactions, dodgy debt transfers to the people, making up lies on investment banks balance sheets is the norm.
        Many nations and big banks, investment banks are insolvent.
        75 trillion or 100 trillion on paper , whats the difference, NOTHING as its all bullshit and fictional made up to rule nations( lending debt created money with interest to private banksters, taxes paid to the banksters by the taxpayers/debt slaves) .

        Debt slaves believe what the banksters tell them about the bankster system. The idea that the banksters create money from nothing goes over their heads.
        Only if the banksters stop lending does the system collapse.
        Ask yourself are the privately owned FED reserve {Rothschilds and Rockefellows} planning to “collapse the banking system”( or stop lending). .

  • Nexusfast123

    What did they think would happen. The bankers showed no sign that they would change their disgusting and thieving behaviour and have continued to indulge in risky practices. This time outside the regulatory framework. The Humpty Dumpty financial system will fall but they won’t be able to put Humpty Dumpty back together again.

  • Ken, Megapolis

    It would be such a shame if banking incompetence was the sole reason society as we know it collapsed. Surely we should hold ourselves to higher standard don’t you think?
    Normally what is known as a geohazard leads to collapse. Examples are climate change, tsunami’s, freak weather, disease, wars etc.
    Geohazards are many and varied and I quite frankly am scared of them. I don’t dwell on them. Mainly because keeping busy and in gainful employment helps a lot.
    I still pray they stay well away from me.
    Had a bereavement and identity theft but coping remarkably well thank you.

  • unbubbleslayr

    Keep in mind the banks have survived worse crisis. They have nearly lost 200 years worth of profits in a couple months in the 1990s. Do you really think the government can’t save them again?

  • jaguar

    Look for the financial collapse to happen on September 13 give or take a day or two…we don’t have long to prepare…That’s why they are turning empty walmarts into prison processing centers and are training for civil unrest as we speak!! Its being done right under our noses!!

  • Rogoraeck

    75 Trillion Dollar Shadow Banking System Is in Danger of Collapsing –
    See more at: