The Financial Stability Board (FSB), created in April 2009 of the year at the height of the global financial crisis at the G20 summit in London, published a report at the end of 2012 on global banking shadow operations of banks and other financial organizations (1) .
The report assessed the extent of shadow operations in 2011. Their total volume amounted to 67 trillions of dollars, which is not much less than the value of world gross domestic product in the same year. The figure is shocking, it radically changes our understanding of the structure and structure of the entire global economy ...
The scale of the shadow operations of banks grow every year. The earliest estimate refers to the 2002 year: 26 trillion. dollars On the eve of the global financial crisis (2007), shadow operations already amounted to 62 trillion. dollars. According to many experts, it is precisely the increasing departure of banks into the “shadow” that increases the instability of the global financial system, becoming the “breeding ground” for a repetition of the global financial crises. True, the authors of the report are trying to give some optimism to their assessments and conclusions, arguing that the share of shadow operations in the total turnover of financial organizations since 2007 has not increased. But even in 2011, it was, according to FSB estimates, 25% of the total turnover of all banking and financial organizations in the world. The share of the shadow sector of banks and financial companies in terms of assets is about the same. But even a quarter of the global financial and banking business in the “shadow” is prohibitively high.
The report notes that the leaders in the scale of shadow operations are US financial organizations - 23 trillion. dollars In second place - the organization of European countries in the euro area (22 trillion. dollars). In third place are financial institutions in the UK (9 trillion. Dollars). Thus, the financial organizations of the rest of the world (Japan, Canada, Australia, more than a dozen European countries, China, India, Russia, Brazil, all developing countries) account for 13 trillion. dollars or less 1 / 5.
As for Russia, the share of shadow banking is estimated by experts at the level of world average values: 25-30% of the turnover and assets of the white banking. Assets of the Russian banking system, according to the Bank of Russia, constitute 47 trillion. rubles (1,5 trillion. dollars), therefore, in the shadow banking is assets on 12-14 trillion. rubles (380-440 billion dollars) (2)
The USA and the UK are the main areas of shadow banking
The figures contained in the FSB report are very remarkable against the background of the constant statements by statesmen and politicians in the West that the bulk of the global shadow economy is outside the “golden billion” habitat zone. From this report it follows that, apparently, at least 90 percent of the total shadow financial and banking business in the world is accounted for by organizations registered in the “golden billion” zone. Therefore, the black lists of the FATF (an organization operating within the OECD and dealing with the fight against the shadow economy and the laundering of dirty money) should first of all include countries such as the United States and the United Kingdom.
The highest relative level of shadow financial and banking operations is recorded in some financial centers and countries with signs of offshore zones. Shadow turnover of financial and banking organizations in relation to GDP in Hong Kong amounted to 520%, and in the Netherlands - 490%. It should be noted that in the whole world all the shadow operations of financial and banking organizations in 2011 amounted to 86% of world GDP (according to the FSB report; according to our estimates, 96%). Against the background of the global average, two countries clearly stand out: the United Kingdom - 370% and the United States - 150%. Shadow operations provide banks and financial organizations with the bulk of their profits. In the United States, for example, in the first half of the twentieth century, the share of the financial sector in the total volume of profits of companies in all sectors of the economy was at the level of 10%, in the 70-s. last century - 20%, and now - more than 50%.
In continental Europe, the development level of shadow banking is more modest (with the exception of the Netherlands).
The authors of the report refer to those that fall out of sight of the regulatory and supervisory (supervisory) bodies. Why are the largest volumes of shadow operations recorded in the United States? Therefore, the authors of the report believe that during the times of President Bill Clinton, there was a liberalization of financial regulation of banks and other organizations. First of all, the Glass-Stigal Act, which prohibited lending and depository organizations (commercial banks) from conducting high-risk investment operations at the expense of depositors, was repealed. According to this law, which was adopted in 1930-s in the conditions of the crisis that then broke out in America, highly risky speculative operations with securities were transferred to the so-called investment banks (investment brokers). Financial regulators were not responsible for the speculative operations of such banks, all the risks borne by investors. The abolition of the Glass-Stigal law and some other easing of financial regulation under B. Clinton led to the fact that depositors' funds from banks began to go to stock markets. At the same time, banking supervision ceased to “see” the full range of banking operations, most of the operations became non-transparent for such supervision. All this hastened the onset of the financial crisis, first in America and then beyond its borders.
Shadow Banking USA based on Fed data
Estimates of the FSB report relating to the United States can be supplemented with the latest figures from the statistics of the US Federal Reserve. According to the Fed, at the end of the third quarter of 2012, the total assets of US private depository institutions (in other words, commercial banks) amounted to 14,76 trillion. dollars, i.e. were almost equal to the country's annual GDP. At the same time, depository institution loans (loans) amounted to 2,18 trillion. dollars, and credit market instruments (credit market instruments) of such deposit institutions - 11,29 trillion. $ (3) Credit market instruments are various valuable debt securities traded both on the stock exchange and beyond. US monetary authorities track only a small portion of active operations of US banks related to traditional lending. The US Securities Commission more or less monitors securities transactions on the stock exchange, and the fact that outside of it is covered with a big fog, or rather, a shadow.
It can be noted that a significant part of the operations of US banks with securities are not reflected at all in their balances. There are two possible options.
The first option: banks include some off-balance sheet operations as off-balance sheet operations; neither regulators, nor clients, nor partners of such banks know about them. The liberalization of the time of B. Clinton created the opportunity for the wide use of such accounting tricks as banks and companies from other sectors of the economy. Shortly after the green light was given to the use of such tricks, the collapse of the energy concern Enron, which conducted double and even triple bookkeeping, occurred.
The second option: banks create special "pocket" companies that are designed exclusively for speculation with the papers; corresponding operations are reflected in the balance sheets of such “pocket” companies.
According to the Fed, at the end of the third quarter of 2012, the total amount of the so-called credit market instruments amounted to 38,83 trillion. dollars. Thus, outside the banks, which can be conventionally attributed to the white economy, there are thousands and thousands of companies and funds, which in total shifts in the amount of 27,54 trillion in securities. In relation to the estimate of US GDP in 2012, this represents approximately 175% (4). In the first approximation, this figure can be used to estimate the scale of shadow banking in America, and the FSB estimate for the shadow banking of the USA (150% of GDP) should be regarded as extremely conservative.
Shadow banking mechanics
Thus, the participants in the shadow business are quite legal financial and banking organizations whose operations fall out of sight of the supervisory authorities. Among such legal entities, hedge funds, mutual funds, and certain types of investment funds stand out, which are almost 100% out of sight of regulators. Companies of various industries that actively trade on the stock market also fall here (trade and production activities for them play the role of camouflage and / or play a subordinate role). Formally, various types of funds and companies do not belong to the banking system, but in fact are a continuation of this system, tools of large international banks.
The shadow banking system (shadow banking) is essentially the same investment banking activity carried out within the framework of existing legislation, but through intermediary companies (funds, trusts created for the special goals of the company). These intermediaries, as a rule, do not have the right to attract deposits from the public and do not have banking licenses. Otherwise, their activity is not much different from the activities of the investment division of the bank. The use of such "dark horses" significantly increases the flexibility of providing financial services due to the fact that they are practically beyond the control of regulators.
Shadow banking, analyzed in the FSB report, differs from the classic shadow banking operations. The latter include “laundering” of “dirty” money, transferring non-cash money into cash to serve various types of shadow economy, financing terrorism, corruption, taking profits offshore, etc. According to the CIA, the volume of such "classic" operations of banks is 3-4 trillion. dollars on a global scale. (By the way, in Russia the annual turnovers of such a classic shadow business of banks are estimated to be in the order of 100 billion dollars). A feature of classic shadow banking operations is that in the event of disclosure of frauds, bankers are legally responsible for them, often criminal. Shadow banking, described in the FSB report, belongs to the category of legal transactions.
The Financial Stability Board believes that a common type of legal shadow transactions is the repurchase of assets in the form of securities (repo transactions). Thus, during the global credit crisis, one of the largest Wall Street banks, Lehman Brothers, temporarily removed billions of dollars of “problem” assets from the balance sheet through repo transactions. Similarly, the bank tried to convince investors of its stability and reliability.
There are operations that allow to remove “problem” assets from the balance not for a while, but forever. Among the latter, operations of the so-called securitization have received a particularly large scale. Their essence is that the bank reissues its credit requirements (credit assets) into securities, which are sold in the financial market through a special intermediary company. Such a company, of course, is created by the bank itself and is controlled by it. The bank sells the credit requirements of a special company in bulk, mixing loans of different quality. A special company “packs up” this mixture of incomprehensible quality (most often the quality is below any standard) for “sachets” of securities and resells the mixture at retail to all sorts of trusting investors in the financial market. Figuratively speaking, the sale of "the cat in the bag." This is exactly how “landmines” were laid for the American economy in the past decade: mortgage loans of banks were transformed into mortgage securities, which were snapped up like hotcakes on the stock market. It ended all the crisis 2008-2009. This is a brief description of securitization, which is written about in economics textbooks as the “highest achievement” of modern “financial engineering”. Algorithms of operations are explained in detail, but their fraudulent essence is not disclosed. In 99% of cases, securitization of bank assets ends with a commonplace public deception, or even a large-scale crisis. And banks formally do nothing to do with it, they come out of the water dry.
Shadow Banking, FSB and Bank of International Settlements
After the financial crisis, 2008-2009. Many countries have tightened rules for working in the stock market for various types of financial organizations. This was enough to prevent an increase in the share of shadow operations in the total turnover of financial and banking organizations, but not enough to restrain the growth of absolute volumes of shadow operations. As practice shows, the more stringent the requirements for information disclosure and the fulfillment of various requirements of regulators, the more money flows into the shadow banking sector. Therefore, the monetary authorities have to maneuver between Scylla and Charybdis: on the one hand, not to bring the process of banking sector regulation to the point of absurdity, in order to prevent complete withdrawal of funds into the “shadow”, and on the other - to control systemic risks, the source of which is mainly in the shadow financial system.
It is assumed that the issues of shadow banking will be discussed by the leaders of G20 at the summit in St. Petersburg in 2013. The Financial Stability Board (FSB) intends at this summit to come up with relevant proposals to combat shadow banking.
In conclusion, briefly about the FSB. The officially declared goal of this organization is to coordinate at the international level the actions of national financial authorities and international organizations to develop and put into practice measures to strengthen financial stability. The measures include monitoring, regulation and supervision by the financial authorities of banks and other organizations operating in the financial markets (stock, currency, credit, money, insurance). Currently, FSB is headed by Mark Carney, Governor of the Central Bank of Canada (Bank of Canada).
The FSB Secretariat is located in Basel in the building of the Bank for International Settlements (BIS). De facto, the FSB is a division of the BIS, an organization that coordinates the activities of central banks in different countries. Within the framework of the BIS, there is a banking supervision committee that develops recommendations for central banks and other financial regulators to prevent massive bank failures and banking crises. These recommendations are contained in voluminous documents, which are called Basel 1, Basel 2, Basel 3. The recommendations of the Bank for International Settlements for Banking Supervision have in fact preserved and continue to preserve the thieves' usury system that has developed in the world, which generates crises (for example, the global financial crisis 2008-2009). This is not surprising: after all, the BIS is an organization created by the most powerful global usurers, but this is a topic for another discussion. We can only briefly say that the BIS, along with the Federal Reserve, is the key organization of the global financial system.
There is a suspicion that the FSB will also not be able to fulfill the mission entrusted to this organization. At least, the functioning of the FSB for three and a half years since its establishment and in the slightest degree did not slow down the growth of shadow banking in the world.
(1) FSB Publishes Shadow Banking. FSB Press release. 18 November 2012.
(2) Alexandra Lozovaya, Director, Analytical Department, IK Vector Securitiz // Opinion.ru, 20 November 2012.
(3) United States. Third Quarter 2012. Federal Reserve Statistical Release. - Wash., December 7, 2012, pp.75.
(4) Ibid., Pp.76-77.
Shocking data on the global banking business
- Valentin Katasonov