OFR_2016_Financial-Stability-Report

An earlier OFR paper proposed an accounting framework
for measuring sources and uses of short-term funding
in the financial system. It noted the largely opaque role
played by the trillions of dollars held by institutional cash
pools, which include large corporations, central banks,
and asset managers (see Pozsar, 2014).
Credit risk for nonbank credit providers. Private assetbacked
securities were the major source of funding for
subprime mortgages in the run-up to the financial crisis.
This type of nonbank credit has declined by almost $1 trillion
since 2011. Still, based on our definition of shadow
banking, shadow banking remains the major source of
credit to U.S. businesses and households, providing close
to 40 percent of credit compared with 32 percent provided
by depository institutions (see Figure 14). Shadow
banking credit in total has grown more than $1.2 trillion
since 2011. This growth has been driven by mutual funds
and other asset managers. Between 2011 and June 2016,
mutual funds that focus on bank loans have risen 63 percent
to $89 billion, and high-yield bond funds have risen
28 percent to $248 billion (see Morningstar, 2016).
Hedge funds are another growing source of credit intermediation
that remains somewhat opaque. Recently
adopted reporting requirements have improved transparency.
The SEC’s Form PF shows that hedge funds’ total
investments in loans were $138 billion as of June 2016. Their total investments
in corporate loans and fixed-income securities were $662 billion, excluding
sovereigns. However, Form PF does not identify borrowers or provide further
information to help analyze risks.
Figure 14. Providers of Credit to U.S. Real Economy
($ trillions)
Shadow banking accounts for close to 40 percent of total
credit provided in the United States
Foreign
sector
Federal
Reserve
Banks
Governmentsponsored
enterprises
Shadow
banking
Q1 2016
Q1 2011
0 2 4 6 8 10 12 14 16
Q1 2016
Q1 2011
Pools & ABS issuers
Pools & ABS issuers
Funds
Funds
Other
Other
Note: ABS stands for asset-backed securities. “Funds” includes
pension funds, money market funds, mutual funds, exchangetraded
funds, real estate investment trusts, and private funds.
“Other” includes insurance companies, finance companies, and
broker-dealers.
Sources: Haver Analytics, OFR analysis
In addition to hedge funds, a segment of private funds known as private debt
funds provides credit by originating loans. Private debt funds file Form PF but
don’t disclose the size of their loan portfolios. Industry data show that fundraising
in these funds grew from $38 billion in 2010 to $85 billion in 2015. Total
assets under management were $523 billion as of June 2015 (see Preqin, 2016).
Business development companies are another small but growing type of
nonbank lender to corporations. There were 66 operating business development
companies with more than $70 billion in outstanding loans as of June
2016, according to data from SNL Financial.
Financial Stability Assessment 15