Less Regulated ‘Shadow’ Lenders Receive $1 Trillion in Loans from US Banks

In January, US banks gave out $1 trillion in loans to non-regulated “shadow banks.” These alternative lenders are becoming increasingly popular as banks look for new revenue streams. Despite concerns from regulators about the higher risk debt associated with these less regulated financial entities, several major banks including Citigroup and Wells Fargo have strengthened their ties with shadow bank lenders.

The rise in lending to shadow banks has raised systemic risks among regulators. These so-called shadow banks are often less regulated, and many lend money to enterprises where returns may be greater but risks are much higher than what a regulated institution would be able to tolerate.

Experts have warned that such loosely regulated financial institutions have exposed banks to lower-quality loans. Major banks have steadily ramped up lending to less regulated finance companies, and since 2010, when they were first required to report the volume of loans made to non-bank lenders, the share of financing to shadow banks has reached 6% of all bank lending, more than auto lending and not far below credit card debt.

By Editor

Leave a Reply