Worried About Shadow Banking? Don’t Look at China
The size of the US’s leveraged finance market is a bigger worry than China’s ballooning debt pile.
What’s lurking in the shadows?
Photographer: David Paul Morris/BloombergWhen we talk about shadow banking, we think of China, one of the world’s most indebted nations. Lending by companies that do not own a banking license has reached 50 trillion yuan ($7.3 trillion), or about 42% of gross domestic product, according to Moody’s Investors Service.
As the recent banking crisis is forcing investors to figure out where the next pressure point might be, they are starting to see that the US has quietly built up a huge pile of hidden debt as well. After a decade of a risk-on run, the US leveraged finance market — almost held entirely by shadow lenders which typically operate with little or no regulator oversight — has topped $3 trillion. Money managers are worried, and even the slow-moving government has signaled closer scrutiny.