Shadow Banking Research Paper Example | Topics and Well Written Essays - 750 words

Shadow Banking - Research Paper Example For instance, it is evident that the shadow banking in the U.S. rose to an index value of 162.5 in 2008 when her total assets were approximately $20.7 trillion. Currently, the index value of shadow banking in the U.S. is 72.2 which correlate with $9.2 trillion in assets. Although shadow banking has reduced significantly in the U.S. it is evident that some people are still indulging in insecure lending in the banks (Tracy 2014). It is also evident that the U.S. still licenses nonbank firms such as payday lenders as well as mortgage services. It is also evident that most of the financial lending are not supervised the ground in the U.S. additionally, it is evident that some of the banks in the U.S. are diverting their activities to nonbank financial institutions so as to avoid oversight. Unfortunately, such practices have the potential of causing a financial crisis. To combat the problems associated with shadow banking, â€Å"New York’s Department of Financial Services is probi ng large mortgage-servicing firms amid concerns about practices that could be unfair to consumers† (Tracy 2014). Just like in the U.S. shadow banking is also practiced in China. However, its rate is very high in China than in the U.S. This is as a result of the Chinese government barring local governments from borrowing money from the banks and also its support for the shadow banking through its structured financial system (Das 1). For instance, it is evident that China’s government forces most businesses to rely on shadow banking system by mandating only four banks to practice credit markets. It is also evident that China’s government takes part in the regulation of deposit interest rates, a practice that facilitates shadow banking. The curtailing of credit expansion by the China’s government through reducing loan quotas also catalyzes growth of shadow banking sector. Most banks in China have been forced to seek for alternative ways of making profits.