S&P says shadow banking system stepping into the limelight
The credit crisis pulled the shadow banking system into the light, creating a new era of transparency that could stave off future financial meltdowns, Standard & Poor's analysts concluded in a new report. The shadow banking system — otherwise known as the financial system that operates outside the world of regulated depositories, investment banks or bond funds — could be positioned to take a greater role in lending, according to Standard & Poor's. A run on the shadow banking system knocked many of the players out of the game during the economic downturn, leaving a few bit players who still could have a place in lending, analysts said. Bbringing this system into the light will create more transparency, which in turn could lead to a safer banking system, according to S&P. "In our view, shadow-banking players differ from traditional banks in three important ways," said Standard & Poor's credit analyst Nik Khakee. "They don't typically operate under bank regulatory supervision and thus often operate under differing capital, leverage, and liquidity guidelines. "They don't normally benefit from government capital support, such as deposit insurance. And they don't benefit from the liquidity support available to regulated banks, such as the ability to borrow from the Fed," Khakee said. Write to: Kerri Panchuk.