This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

5 Big Shadow Banking Threats to Everyone and Everything

Stocks in this article: GEGSMSCMEFII

NEW YORK ( TheStreet)-- Shadow banks -- entities that provide credit as banks do but aren't subject to the same types of regulations -- were arguably at the center of the 2008 financial crisis. However, while rules for banks have been tightened since 2008, most experts agree that little if anything has been done to regulate shadow banks more closely.  

"Nothing has changed in terms of the regulatory structure of shadow banking. It's certainly the case that top regulators and analysts are much more aware now of problems that could go wrong and we don't have all of these very shaky asset backed securities floating around that would lead to the kind of meltdown that we saw a few years ago," says Yale University professor Andrew Metrick. However, he adds, "the main pillars of the money market mutual fund system, securitization and repo are not regulated any differently than they were in 2008,"  

While Metrick and his Yale colleague Gary Gorton focus on those three main pillars, other experts have argued for a broader definition.  

An essay by Boston College finance professor Ed Kane, essentially defines shadow banks as entities that have persuaded their customers that they will be bailed out if necessary by a government--even though they are not formally protected by government guarantees.  New York University professor Viral Acharya, meanwhile, argues that governments themselves are shadow banks.  

"By allowing excessive competition, providing downside guarantees and encouraging risky lending for populist schemes, governments can create periods of  intense economic activity fueled by credit booms. This way, governments effectively operate as "shadow banks" in the financial sector. Such a government role appears to have been at the center of recent boom and bust cycles and continues to present a threat to financial stability," Acharya wrote in a paper published on the Federal Reserve's website.  

Shadow banks, in other words, aren't always easy to define and they often refer to markets rather than specific entities or institutions. What follows is a combination of both shadow bank markets, as well as institutions that--while not themselves shadow banks--have substantial exposure to the shadow banking system.  

1 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,326.66 -53.75 -0.33%
S&P 500 1,890.39 +3.63 0.19%
NASDAQ 4,277.5630 +19.1250 0.45%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs