Shadow Banking Sector Emerges as Likeliest Source of Credit Event
Shadow banking surpasses commercial real estate as the most likely source of a credit event, according to a Bank of America survey, due to its rapid growth and loose oversight.
Shadow BankingCredit EventCommercial Real EstateFinancial MarketsCredit QualityReal Estate NewsJul 18, 2024
Shadow banking refers to a group of lenders outside of the traditional banking system, which are often less regulated. This lack of oversight has led to rapid growth in the sector, with assets and capital reaching $2.1 trillion last year, according to the International Monetary Fund (IMF). However, the sector's high returns have attracted investors, despite concerns over opaque credit quality and infrequent valuations.
Top Wall Street commentators, such as JPMorgan chief Jamie Dimon, have expressed concerns over bad actors in the industry, warning of unforeseen systemic risks. The Bank of America survey found that fund managers are still keeping a close eye on commercial real estate, which has been impacted by high interest rates and a significant pullback in office demand.
The sector's ability to pay off debt has become a concern, with $1 trillion worth of debt due to mature by the end of this year. Defaults have already been seen in high-quality bonds, and regional banks are most exposed to the sector.
Despite these concerns, investors remain optimistic overall, with 68% expecting the global economy to achieve a \
Frequently Asked Questions
What is shadow banking?
Shadow banking refers to a group of lenders outside of the traditional banking system, which are often less regulated.
What is the current size of the shadow banking sector?
The shadow banking sector has reached $2.1 trillion in assets and capital, according to the International Monetary Fund (IMF).
What are the concerns surrounding shadow banking?
Concerns include unforeseen systemic risks, opaque credit quality, and infrequent valuations.
How exposed are regional banks to the commercial real estate sector?
Regional banks are most exposed to the commercial real estate sector, which has been impacted by high interest rates and a significant pullback in office demand.
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