The coming need for TARP 2 - Bend over Taxpayers!
Excerpts from Bloomberg:
July 16 (Bloomberg) -- Liabilities of shadow banks, or institutions without access to central bank loans or permanent federal guarantees, still exceed the traditional banking system’s three years after the financial crisis began, according to a report from the Federal Reserve Bank of New York.
The shadow banking system had about $16 trillion of obligations in the first quarter, compared with $13 trillion for banks, the report said. The gap has narrowed from 2008, when obligations were $20 trillion and $11 trillion, respectively.....
“The shadow banking system was temporarily brought into the ‘daylight’ of public liquidity and liability insurance -- like traditional banks -- but was then pushed back into the shadows,” Fed researchers including Zoltan Pozsar and Tobias Adrian wrote in the report issued earlier this month.
Given the size of this parallel banking system and its vulnerability to further panics, “it is imperative for policy makers to assess whether shadow banks should have access to official backstops permanently, or be regulated out of existence,” the researchers wrote......
It’s an interesting historical document, but if anything it’s a great illustration of what the Fed did wrong,” said Christopher Whalen, managing director at Institutional Risk Analytics. The Fed, along with the Securities and Exchange Commission, allowed banks to create virtually unlimited securities via shadow banking, he said.
Rule changes by the Financial Accounting Standards Board and the SEC are requiring banks to bring many of these obligations onto their own balance sheets. As that happens, the shadow banking system will disappear, according to Whalen.
“The report is a reminder that we’ve taken trillions of dollars of financing out of the economy,” said Whalen. “It’s going to run off in four to five years and it’s not being replaced.”
“When you look at the confused mess of transactions on the map, you have to ask how this was allowed to exist in the first place,” Whalen said. http://noir.bloomberg.com/apps/news?pid ... 6iLI&pos=6