Boom and Collapse of The Shadow Banking System
The non-depository banking system grew to exceed the size of the regulated depository banking system. However, the investment banks, insurers, hedge funds, and money market funds within the non-depository system were not subject to the same regulations as the depository system, such as depositor insurance and bank capital restrictions. Many of these institutions suffered the equivalent of a bank run with the notable collapses of Lehman Brothers and AIG during September 2008 precipitating a financial crisis and subsequent recession.
The FCIC report explained how this evolving system remained ineffectively regulated: "In the early part of the 20th century, we erected a series of protections—the Federal Reserve as a lender of last resort, federal deposit insurance, ample regulations—to provide a bulwark against the panics that had regularly plagued America’s banking system in the 19th century. Yet, over the past 30-plus years, we permitted the growth of a shadow banking system—opaque and laden with shortterm debt—that rivaled the size of the traditional banking system. Key components of the market—for example, the multitrillion-dollar repo lending market, off-balance-sheet entities, and the use of over-the-counter derivatives—were hidden from view, without the protections we had constructed to prevent financial meltdowns. We had a 21st-century financial system with 19th-century safeguards."
Read more about this topic: Government Policies And The Subprime Mortgage Crisis
Famous quotes containing the words boom, collapse, shadow, banking and/or system:
“California is a place in which a boom mentality and a sense of Chekhovian loss meet in uneasy suspension; in which the mind is troubled by some buried but ineradicable suspicion that things had better work here, because here, beneath that immense bleached sky, is where we run out of continent.”
—Joan Didion (b. 1935)
“The world was a huge ball then, the universe a might harmony of ellipses, everything moved mysteriously, incalculable distances through the ether.
We used to feel the awe of the distant stars upon us. All that led to was the eighty-eight naval guns, ersatz, and the night air-raids over cities. A magnificent spectacle.
After the collapse of the socialist dream, I came to America.”
—John Dos Passos (1896–1970)
“Yet there is a mystery here and it is not one that I understand: without the sting of otherness, of—even—the vicious, without the terrible energies of the underside of health, sanity, sense, then nothing works or can work. I tell you that goodness-what we in our ordinary daylight selves call goodness: the ordinary, the decent—these are nothing without the hidden powers that pour forth continually from their shadow sides. Their hidden aspects contained and tempered.”
—Doris Lessing (b. 1919)
“One of the reforms to be carried out during the incoming administration is a change in our monetary and banking laws, so as to secure greater elasticity in the forms of currency available for trade and to prevent the limitations of law from operating to increase the embarrassment of a financial panic.”
—William Howard Taft (1857–1930)
“Never expect any recognition here—the system prohibits it. The cross is not affixed to the genius, no, the genius is affixed to the cross.”
—Franz Grillparzer (1791–1872)