Friday, May 29, 2009

Shawdow Banks

Til Schuermann on the real size of the Non-Bank Sector

Til Schuermann a member of the Federal Reserve Bank of New York testified before congress and he made some scary remarks. It's a highly recommended reading

"When one adds credit provision though corporate bonds and commercial paper, one realizes that commercial banks have provided only about 20% of total U.S. lending, since the early 90s. The four decades prior had banks’ share closer to 40%. The rise of market-based instead of bank-based credit provision in the last twenty years has been substantial and important."

Bernanke was using misleading numbers about a 50% share a few months ago, I assumed his figure was correct. I first saw the 20% in the Economist a few weeks back, the FRBNY now is backing this. With the shadow banking system now in its grave(the commercial banks still zombified) plus market lending still weak(although enjoy a nice temporary rebound) this spells big trouble for future credit growth and US potential GDP. The stock market is almost surely being delusional if they expect the type of corporate profit margins the US had in 2007 to return, if anything they will continue to shrink. 2010 GDP which is forecast to be around 2-3% is also almost surely too optimistic with the current levels of credit growth and household stress

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