The size of the shadow banking system has shrunk very considerably since the time of the crisis.
The shadow banking system is likely to become much smaller, so that it will not jeopardize the entire system.
Among many other proposals, it wants the shadow banking system to be subjected to the same sorts of prudential requirements that banks must follow.
Hedge funds, private-equity firms and other parts of the shadow banking system should go, along with over-the-counter derivatives (OTCs), collateralised-debt obligations (CDOs) and other nefarious structured products.
The demise of the investment banks, with their far higher gearing, as well as deleveraging among hedge funds and others in the shadow-banking system will add to a global credit contraction of many trillions of dollars.
BEIJING China moved to rein in wildly popular but opaque investment products that form a key plank of the nation's shadow-banking system, after the high-profile failure of one product offered a glimpse of the risk they pose to the financial system.
Credit Suisse estimates that the so-called shadow banking system now totals Rmb22.8 trillion or 44% of GDP, making it the second largest asset class in China!
The question is whether the shadow system will influence traditional banking in the future.
In a meeting at the New York Fed Monday afternoon, 17 commercial and investment banks joined three fund managers (including the Chicago hedge fund Citadel Investment Group) and trade groups to talk about ways of providing better disclosure of the over-the-counter derivatives market, which is part of the so-called shadow banking system.
The shadow chancellor went on to argue that short-term profits in the banking system should not "come at the expense of long-term costs for the rest of society".
It is also unfair on the Fed, which had to stand in place of America's collapsed shadow-banking system.
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