Unmonitored growth of shadow banking risky: IMF

Lack of monitoring of the shadow banking system is a risk to financial stability, the International Monetary Fund, or IMF, said late Wednesday. According to the Global Financial report from IMF, shadow banking amounted to around 7 trillion dollars in emerging markets. This is outpacing the growth of traditional banking systems. ‘Shadow banking tends to take off when strict banking regulations are in place, which leads to circumvention of regulations,’ Gaston Gelos, chief of the Global Financial Analysis Division at the IMF, said. ‘It also grows when real interest rates and yield spreads are low and investors are searching for higher returns, and when there is a large institutional demand for 'safe assets,' for example from insurance companies and pension funds.’ However, shadow banking is risky due to its reliance on short-term funding, which can lead to forced asset sales and downward price spirals when investors want their money back at short notice, the report said, according to nasdaq.com