Shadow Banking and the Rise of Global Debt

Item does not contain fulltextShadow banking, understood as credit intermediation by non-depository financial institutions, or lending by the so-called non-banks or quasi-banks, has been on the rise before and after the 2008 crisis in many parts of the world. This chapter locates the emergence and the rise of shadow banking both theoretically and empirically in the structural and recurring problem of overaccumulation, referring to a situation when surplus capital cannot be profitably reinvested in the realm of production. Overaccumulation has become manifest in abundance of liquid capital searching for yield in the financial circulation sphere. This chapter demonstrates that shadow banking not only offers a machinery that absorbs and processes overaccumulated surplus capital, but also provides an infrastructure for improving the liquidity basis for ordinary banks to leverage the issuance of new debt. The expansion of shadow banking, in other words, is intimately linked to the unprecedented growth of global debt levels. As long as economies can take on more debt and provide assets to feed to global financial system, shadow banking will be likely to increase further. However, once the productive capacity and future income and the accumulation of debt are too much out of sync, and debtors cannot service their debt, a crisis emerges—a crisis that promises to be far bigger than what we witnessed in 2008