Remember the global financial crisis? Well, high-risk securities are back - sh.itjust.works
sh.itjust.works
But, 16 years (after the 2008 crisis), some experts believe new risks are emerging. And this time, they are linked to highly indebted companies backed by private equity firms, which are part of the growing but opaque portion of the financial system known as the shadow banking sector. Shadow banking refers to financial firms that face little to no regulation compared with traditional lenders, and includes businesses such as hedge funds, private credit and private equity funds. While the use of securitisation dipped in the wake of the 2008 financial crisis, as a result of a tarnished reputation and regulatory backlash, its popularity has subsequently risen. Today, the global securitisation market covers about £4.7tn of assets, according to estimates by analysts at RBC Capital. In this public market, bundled loans are rated by credit rating agencies and sold on to a broad range of investors, and their terms, structure and sales are openly disclosed. These are the routes typically taken by traditional banks, which face far more stringent regulation. The remaining £120bn is made up of securitised loans bundled up by the shadow banking sector. Private securities are sold directly to a limited pool of sophisticated investors. They are less regulated, need not be reviewed by ratings agencies, and are far more opaque.

Crosspost worldnews: The shadow banking sector is trying its hand at trading in debt-based products such as collateralised loan obligations

  • Riddick3001@lemmy.worldOPEnglish
    9·
    1 month ago

    This article depicts my worries for especially Europe very well, considering;

    • the need to develop EU Capital market ( ex.Draghi plan) & many others external advisers (ex WTF, Mc Kensey)
    • American Capital market giants expanding their operations ( ex. blackrock, capital group) and their trackrecords in wreaking chaos
    • the need to curb inflation and having competitive and doable interest rates

    my question remains, how can we as EU develop our market in a positive way, without crazy money cowboys overuling the capital market?

      • Riddick3001@lemmy.worldOPEnglish
        3·
        1 month ago

        Honestly I don’t know. .Iirc Draghi’s reputation in Italy is somewhat divided though his bio and international reputation is very impressive. Personally I agreed with many points of his analyses in his 2024 report, though I remain a bit critical of his proposed solutions. There was recently another report, also interesting, but i can’t remember the name.

        Of late,modern monetary theories have shed light on a different approach to the famous 2% EU spending rule. The situation and crises in Europe is a challenge, and something must change and should be done.

        This whole topic though a bit abstract for general public is quite relevant to the EU. According to this Press release by the Council of the EU,19 November 2024, Capital markets union: Council adopts revamped rules for EU clearing services.

        " Derivatives play an important role in the economy, but they also bring certain risks. This was demonstrated during the 2008 financial crisis, that brought to light the weaknesses in the OTC derivatives markets.

        To address the situation, the EU adopted the European market infrastructure regulation (EMIR) in 2012. The aim was to increase transparency in the OTC derivatives markets, mitigate credit risk and reduce operational risk.

        On 7 December 2022, the Commission presented a proposal to review European market infrastructure regulation and directive in order to deepen the EU’s capital markets union, improve the existing rules and make the EU’s clearing landscape more attractive.

        Adoption by the Council follows an agreement reached with the European Parliament at first reading under the ordinary legislative procedure.

        • SubArcticTundra@lemmy.mlEnglish
          2·
          1 month ago

          I see, interesting. Would a European capital market mean more venture capital for local startups , or am I looking at things too simplistically? What’s the benefit of the stocks and shares being this side of the Atlantic? (Besides them being within our own jurisdiction)

          • Riddick3001@lemmy.worldOPEnglish
            2·
            1 month ago

            According to the plans, and as I understand it, ideally and eventually, absolutely yes. The system is there, but underdeveloped.

            The more I think about it, the more I see it’s potential.

            So, in the “new” Europe, we would like a Norwegian guy to be able to invest easily in a Portuguese startup who is investing in Romania.

            Development is key, hopefully we see rapid improvements by 2027 EU leaders to set deadlines on bloc’s competitiveness push

  • 0x815English
    31·
    1 month ago

    They are not back, they have never been away. And it’s not just the hedge funds but also the regulated banks that gamble with such risks (although the former hold much more assets).

    There is a good analysis from May 2024. Among others, it says:

    According to financial data at the [U.S.] Federal Financial Institutions Examination Council (FFIEC), as of December 31, 2023, JPMorgan Chase held $3.227 trillion off-balance sheet, of which $528.5 billion is undefined and marked as “other.” To put that in perspective, $528.5 billion is the size of the assets of the seventh largest bank in the United States and yet the public has no idea what the $528.5 billion off-balance sheet at JPMorgan Chase is made up of or what kind of risks it presents.

    The article also deals with possible solutions. One major issue would be to prohibit deposit-taking banks from merging with investment banks, a measure that has been introduced in the U.S. as a response to the Great Depression in the 1930s and was ditched in the 1990s. The U.S. must urgently reintroduce such a law, and Europe and the rest of the world must follow.

  • jenesaisquoiEnglish
    21·
    1 month ago

    People: why can’t you just be normal?

    Banksters: cocaine-fueled screeching