by Roy C. Smith
With the big banks under the boot of the regulators, tucked up with tougher capital ratios, trading restrictions and deferred incentives to rein in recklessness, some bank chief executives and academics have called for similar restrictions on the "non-bank monsters" of the shadow banking system where dangerous, unregulated risks are said still to reside.
A shadow banker is anyone who participates in the lending of money or its near equivalent. These would include financial intermediaries, off-balance-sheet investment vehicles and hedge funds, as well as institutional asset managers.
Altogether, global institutional investors managed about $150 trillion of securities and derivatives in 2009, compared with about $95 trillion for all banks.
But the idea that the next meltdown will occur in the widely distributed shadow banking sector is nonsense, now that its riskier aspects have been addressed.
The five systemically important US non-bank intermediaries - investment banks - were dissolved by the crisis: Lehman Brothers failed, large banks acquired Bear Stearns and Merrill Lynch, and Morgan Stanley and Goldman Sachs turned themselves into banks. The Federal Reserve now regulates them all.
Read the full opinion editorial on eFinancialNews.com.