SAN FRANCISCO (MarketWatch) – A network of lenders, brokers and opaque financing vehicles outside traditional banking that ballooned during the bull market now is under siege as regulators threaten a crackdown on the so-called shadow banking system.
Big brokerage firms like Goldman Sachs (GS:
Goldman Sachs Group, Inc GS 186.93, +4.16, +2.3%) , Lehman Brothers (LEH: Lehman Brothers Holdings Inc LEH 24.46, -0.32, -1.3%) , Morgan Stanley (MS: morgan stanley com MS 40.19, -0.50, -1.2%) and Merrill Lynch (MER: Merrill Lynch & Co., Inc MER 37.69, +0.14, +0.4%) , which some say are the biggest players in this non-bank financial network, may have the most to lose from stricter regulation.
The shadow banking system grew rapidly during the past decade, accumulating more than $10 trillion in assets by early 2007. That made it roughly the same size as the traditional banking system, according to the Federal Reserve.
While this system became a huge and vital source of money to fuel the U.S. economy, the subprime mortgage crisis and ensuing credit crunch exposed a major flaw. Unlike regulated banks, which can borrow directly from the government and have federally insured customer deposits, the shadow system didn’t have reliable access to short-term borrowing during times of stress.
Brokers threatened by run on shadow bank system
marketwatch
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