The Deloitte Shadow Banking Index
Shedding light on banking’s shadows
It is generally agreed that the so-called “shadow" banking sector has become an important part of the financial system. Despite coming under intense scrutiny following the challenging times faced by the financial markets, evaluations of the sector’s size and composition are surprisingly varied— with size estimates ranging from $10 to $60 trillion.
What is the purpose of the Deloitte Shadow Banking Index?
The purpose of the Deloitte Shadow Banking Index is to define and quantify the shadow banking sector over time. This ongoing effort is designed to improve upon existing measures of size and analyze the impact of market and regulatory events, as well as the relationship between shadow and traditional banking.
How is the Index constructed, and how did the Center for Financial Services choose its components?
The Deloitte Center for Financial Services started by identifying entities and activities associated with the term “shadow banking.” We then applied a set of rigorous criteria to select the Index’s components from among these candidates. After determining the components, the Deloitte Shadow Banking Index was created, beginning with data from 2004 set at a base value of 100. This period was chosen due to data availability. While the Deloitte Center for Financial Services has thus far focused on the U.S., future iterations may include international data.
What does the Index show?
The Index shows dramatic growth of shadow banking between late 2004 and late 2008, at which point it eclipsed the traditional banking sector. Since then, there has been an abrupt decline – both in absolute terms and relative to the size of the traditional banking sector – amid a backdrop of economic crisis and volatility, increased regulation and significant changes in the traditional banking system. By our measure, the shadow sector, at a total of $9.21 trillion in Q4 2012, is now nearly 30 percent smaller than at the end of 2004.
Does this decline mean that shadow banking is no longer important to the financial system?
Probably not. The shadow banking sector remains sizable. Moreover, since the growth of shadow banking was fueled historically by financial innovation, any new activity fitting our criteria may become part of the shadow banking sector. That innovation might be but a distant notion at best in someone’s mind today, but could potentially pose a future systemic risk.
How often is the Index updated?
The Deloitte Center for Financial Services is committed to updating the Deloitte Shadow Banking Index on a quarterly basis. The most recent available data, presented here, are for the fourth quarter of 2012.
Please download the attached article, which provides details about the methodology of the Deloitte Shadow Banking Index.