Have you ever heard of NBFI, "Non-Bank Financial Intermediation?"
I first came across this term looking for information about a high-end tourist destination, a small, self-governing island in the Caribean, one of many such places. In addition to high-end tourism, its economy is also dependent on offshore financial services. Among the financial services listed on the internet about the Island's economy is the 'financial intermediation sector. (The what, I ask? )
Section #4 of the FSB report explains that financial intermediation: "" focuses on those parts of non-bank financial intermediation where bank-like financial stability risks may arise. The narrow measure of non-bank financial intermediation, which reflects an activity-based "economic function" assessment of risks, grew by 8.5% to $51.6 trillion in 2017, at a slightly slower pace than 2011-16. The narrow measure of non-bank financial intermediation, which reflects an activity-based "economic function" assessment of risks, grew by 8.5% to $51.6 trillion in 2017, at a slightly slower pace than 2011-16.
Since 2011, the Cayman Islands, China, Ireland, and Luxembourg together have accounted for over two-thirds of the dollar value increase. The narrow measure represents 14% of total global financial assets. Key components include:
· Collective investment vehicles (CIVs)
· Non-bank financial entities engaging in loan provision that is dependent on short-term funding
· Market intermediaries that depend on short-term funding or secured funding
· Securitisation-based credit intermediation
Section 2 provides an overview of, "Other Financial Intermediaries" (OFIs) aggregate, which includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries. These alt-financial entities grew by 7.6% in 2017. OFIs' growth exceeded that of banks, insurance corporations, and pension funds. With $116.6 trillion, OFI assets represent 30.5% of total global financial assets, the largest share on record."
These opaque, unaccountable entities are apparently a go-to source for loans by the global banks and nation-based financial institutions. In November 2010, the FSB defined shadow banking as "credit intermediation involving entities and activities (fully or partly) outside of the regular banking system"
Then, On 22 October 2018, the FSB announced its decision to replace the term "shadow banking" with the term "non-bank financial intermediation," a less sinister sounding accommodation.
So, what is really going on here?
It seems as if billionaires, oligarchs, and their self-dealing minions are growing an alternate financial network that is fully, or partially outside the bounds of national controls. It is certainly outside the direct control of the traditional international banking and finance systems. Traditional international bank institutions appear to be both fearful of, and increasingly dependent on this dark money financing. The FSB writes, "Non-bank financing provides a valuable alternative to bank financing for many firms and households, fostering competition in the supply of financing and supporting economic activity."
Competition indeed. The OFIs alone account for close to a third of all the world's financial wealth. This appears to be a socially malignant treasury of wealth with no direct productive value. It is accessible only to wealthy corporations and the very rich. Its capital gains cannot be taxed for the benefit of any global society.
This whole development may be more than a financial risk to the global economy. It may be a burgeoning threat to the sovereignty of nations and the sanctity of self-governing democracies everywhere. It is a development worthy of our attention and vigilance.
Read the full FSB report here:https://www.fsb.org/wp-content/uploads/P040219.pdf