Shadow banks carried out more bank-like activities in 2019, with the riskiest firms growing the fastest, according to the Financial Stability Board. Their assets also increased by 8.9% over 2019 to $200.2 trillion, beating the banking sector, whose assets grew by 5.1% to $155.4 trillion. What's more, those shadow banks that pose bank-like financial stability risks, grew 11.1% to $57.1. 

Something for regulators to focus on as economies seek to recover from COVID-19.

The report also includes an interesting overview of innovation identified by members.

  • Twenty-two jurisdictions reported peer-to-peer (P2P) lending – the most common innovation identified – which remains very small but is growing rapidly. While data collection remains limited and at an early stage a number of jurisdictions reported that regulations are now in place.
  • Thirteen jurisdictions reported the presence of collateralised loan obligations.
  • Ten jurisdictions reported some involvement of investment funds (e.g. loan funds), special purpose vehicles (SPVs), pension funds or insurers in leveraged loan markets.
  • Nine jurisdictions (four more than in the 2019 report) reported crypto-asset-based lending; this is still a relatively small number, but some jurisdictions reported fast growth.
  • Eight jurisdictions reported crowdfunding to raise mortgage down payments. Where present, typically only a few small firms are involved.

Members also identified these additional innovations:

  • Digital only non-banking financial companies.
  • FinTech lending (consumer credit): These entities offer direct lending through e-commerce partnerships. Their activity is supported by new technology such as machine learning, allowing near-instant credit risk assessment and personalised offerings. Because of their reliance on new digital processes, operational risk is a concern. Leverage and credit risk transfer were also mentioned as potential financial stability risks posed by these entities