Banking in the Shadows
Shadow banking. The term itself gives off a murky vibe. Shadow banking is an informal, unregulated financial system that provides an important source of credit to those who have no access to regular financing or who don't qualify for loans at regular banks. In China alone, the value of shadow banking loans is estimated at roughly $1.3 trillion, according to research firm IHS Global Insight. Bloomberg.com brings you an ongoing collection of articles illuminating the world of shadow banks. (Photograph: Nelson Ching/Bloomberg)
China’s eleventh-hour rescue of wealthy investors in a high-yield trust threatens to drive more money into the nation’s $6 trillion shadow-banking industry, undermining regulators’ efforts to deter excessive risk-taking.
Rebecca Ning, along with 43 million other Chinese, has found a way to make about 6 percent annually, or 17 times her usual interest rate, by tapping her phone and using technology that’s disrupting China’s banking status quo.
Over the past 35 years, Subrata Roy has built an empire known as Sahara India Pariwar, valued at $11 billion at the end of 2012. Now, Roy is fighting to keep all that he created. Regulators say he doesn’t play by the rules and are asking India’s Supreme Court to take away his assets, dismantle his companies and throw him in jail.
China’s credit crunch in June spurred hundreds of millions of households and companies to divert a record share of their savings into wealth-management products, known as WMPs. The amount of such investments surged eightfold from 2009 to 8.2 trillion yuan as of the end of March, according to government data.
Zhou Xiang is playing with his mobile phone in a room just big enough for a desk and chairs at the year-old Wenzhou Private Lending Registration Center. Not a
single prospective customer has shown up for hours.
When Rashmi Deshmukh needed money for her hand-knit clothing business in Mumbai, she couldn’t wait for bank approval. Instead, she put up her wedding jewelry as collateral at a loan-for-gold company to get cash on the spot.
Trusts, targeting people with at least 1 million yuan to invest in alternatives to low-yielding bank accounts, are the fastest-growing segment of China’s nebulous world of shadow banking. They make up more than a quarter of the country’s estimated $3.35 trillion in non-bank lending, according to an Oct. 16 report by UBS AG.
The shadow banking industry has grown to about $67 trillion, $6 trillion bigger than previously thought, leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight.
Thousands of women in Hong Kong, most from Indonesia and the Philippines, are working off debt by turning over almost all of their pay for months to loan companies and agencies that place them as domestic helpers with families. The moneylenders, part of Hong Kong’s shadow-banking system, are helping circumvent laws intended to protect the women. This is their story.
Wenzhou, the Chinese city where more than 80 indebted businessmen committed suicide or went bankrupt in six months last year, was chosen for a trial program that aims to improve funding and broaden investment.
China’s Supreme Court suspended the death sentence for Wu Ying, a woman whose conviction for defrauding investors of $55.7 million highlighted the country’s shadow-banking system and sparked a debate on the use of capital punishment for nonviolent criminals.
When a Chinese court sentenced 28- year-old Wu Ying, known as “Rich Sister,” to death for taking $55.7 million from investors without paying them back, it sparked an unexpected firestorm that has drawn in China’s top leadership.
China’s banking regulator sought to ease concerns about the health of the nation’s lenders and the informal lending market, vowing to control risks and stressing measures already taken by the government are showing results.