ZURICH: The value of non-bank “shadow banking” rose to some $80 trillion (74tr euros) last year, according to a report on Thursday by the Financial Stability Board (FSB), which advises G20 states on banking reform and oversees regulation of the global financial system.

The report, issued ahead of the upcoming G20s summit in Antalya, said shadow banking activities grew by $2tr across 2014 on a broad measure, representing some 80 per cent of global GDP and 90pc of global financial system assets.

The FSB, an international body that monitors and makes recommendations about the global financial system to the G20, was set up six years ago after the implosion of Lehman Brothers and publishes annual reports into the parallel banking system under its remit to promote internationally transparent financial stability.

Shadow banking involves credit intermediation outside traditional banking, including hedge and investment funds.

The Switzerland-based body, chaired by Mark Carney, governor of the Bank of England, is also tasked with identifying potential weak points in the global financial system.

The FSB said it has devised a monitoring framework to track shadow banking developments to enable the identification of systemic risks, “initiating corrective actions where necessary.”

The organisation said this year it has added a more narrowly-focused “economic function” overview of shadow banking for its annual monitoring of the non-bank financial sector in order to devise policy responses aimed at risk mitigation.

The FSB, which works in conjunction with national and international financial regulators, estimated that under the new, activity-based, narrow measure of shadow banking, the sector was worth $36tr in 2014, from $35tr in 2013 — equivalent to some 30pc of overall non-bank financial sector assets and 60pc of the GDP of the 26 participating jurisdictions By comparison, the traditional banking sector was last year worth $135tr, 6.4pc up on 2013, adjusted for exchange rate effects.

For Carney, “non-bank financing is a welcome additional source of credit to the real economy. The FSB’s efforts to transform shadow banking into resilient market-based finance, through enhanced vigilance and mitigating financial stability risks, will help facilitate sustainable economic growth”.

But at the same time he stressed the FSB needed to be vigilant in looking to transform shadow banking into a robust source of market finance and at a level of risk which would not destabilise the financial system.

Glenn Stevens, chairman of FSB Standing Comm­ittee on Assessment of Vulner­abilities said: “The annual shadow banking monitoring exercise is an important mechanism for identifying potential financial system vulnerabilities in the non-bank sector.

Published in Dawn, November 18th, 2015