We’ve collected some spot data on the size of the Shadow Banking market today, in light of regulators starting to ease up on regulations reducing credit and maturity transformation trades. Here’s what we’ve got:
US tri-party repo: US$1,622 billion as of July 10, 2013, according to the Fed. In May 2010 this figure was US$1,688 billion. Over the last three years US tri-party repo volumes have reached about US$2 trillion but this is close to the lowest they have been. According to the Fed, at the peak of 2008 the market was US$2.8 trillion. This is a decline of 42% from the peak to the present.
European repo: EUR 5,611 billion in December 2012, an estimated 11.9% decline from December 2011, according to the ICMA’s European Repo Market Survey. In December 2007 the survey found EUR 6,382 in European repo market activity. There are no same-set figures available for estimating the decline from 2007 to 2012, but we presume it is substantial.
European securitization: EUR 238 billion issued in 2012, a decline of 36% from 2011, according to the AFME/ESF Securitization Data Report. In 2008, EUR 711 billion was issued. This is a 66% decline.
US securitization: US$2 trillion issued in 2012, an increase of 35% over 2011. However, 2012’s figure is a 28% decline from 2007. Figures also from AFME/ESF Securitization Data Report.
Global Securities Lending: US$1.7 trillion today (or maybe a bit less), compared with US$3.8 trillion before Fall 2008. Figures from Finadium, SunGard ASTEC Analytics and Markit Securities Finance.
Money Market Funds: We do not take seriously the figures on the decline of money market funds as an explanation of declining Shadow Banking risk. Enough cash has moved into separately managed accounts that mimic most aspects of regulated money market funds that even though MMFs show net declines, demand has been taken up by these separately managed accounts for the same set of products. We do not believe that there has been any net reduction in systematic risk, for example in bank funding, just because money has moved out of regulated MMFs and into separately managed pools. The one piece of risk that has been reduced is a bail-out of big fund complexes; now the risk is squarely on the shoulders of individual account holders. For the record, the US’s Investment Company Institute shows US MMFs holding US$1.58 trillion in assets as of August 21, 2013. In March 2009, MMFs held $3.9 trillion in assets.