this post was submitted on 24 Nov 2024
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But, 16 years (after the 2008 crisis), some experts believe new risks are emerging. And this time, they are linked to highly indebted companies backed by private equity firms, which are part of the growing but opaque portion of the financial system known as the shadow banking sector. Shadow banking refers to financial firms that face little to no regulation compared with traditional lenders, and includes businesses such as hedge funds, private credit and private equity funds.

While the use of securitisation dipped in the wake of the 2008 financial crisis, as a result of a tarnished reputation and regulatory backlash, its popularity has subsequently risen. Today, the global securitisation market covers about £4.7tn of assets, according to estimates by analysts at RBC Capital.

In this public market, bundled loans are rated by credit rating agencies and sold on to a broad range of investors, and their terms, structure and sales are openly disclosed. These are the routes typically taken by traditional banks, which face far more stringent regulation. The remaining £120bn is made up of securitised loans bundled up by the shadow banking sector. Private securities are sold directly to a limited pool of sophisticated investors. They are less regulated, need not be reviewed by ratings agencies, and are far more opaque.

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[–] [email protected] 7 points 1 day ago

Quickily, let's remove more regulations to avoid this!