NEW YORK–(BUSINESS WIRE) – DBRS, Inc. (DBRS Morningstar) posted a commentary analyzing the impact of the coronavirus disease (COVID-19) pandemic on shadow banking. In a tense environment, withdrawals, funding difficulties and other disruptions in shadow banks can have a pervasive impact on the markets. Positively, the extraordinary measures taken by central banks to inject liquidity into the markets over the past year have avoided the potentially negative impact on the markets which could have been high to extreme levels without this support.
The main highlights include:
With total assets of $ 57 trillion, shadow banks are important players in the global financial system. Collective investment vehicles (VICs), an important component of shadow banking assets, are likely to operate on liquidity. At the onset of the pandemic, funding markets were stressed and demand for liquidity increased, resulting in large outflows from VICs.
The extraordinary supportive measures provided by central banks have helped to avoid further withdrawals of funds, ease funding pressures, support credit quality and limit defaults. However, VICs still pose a risk in terms of funding mismatches, investing in longer-dated assets and allowing investor redemptions.
The growth of shadow bank assets exceeded that of bank assets in 2019. However, shadow bank assets are expected to decline in times of stress while central bank and bank assets grow. This happened in 1Q20, as central bank and bank balance sheets widened while nonbank assets contracted.
“We see significant risk in shadow banks due to their growing size, lack of strong global regulation and inconsistent reporting / lack of transparency. We know that significant risks shifted from bank balance sheets to non-banks after the financial crisis. The magnitude of this risk is difficult to measure, ”said Man Na Cheung, deputy vice president.
To view the full report, click here: https://www.dbrsmorningstar.com/research/378180/shadow-banking-saved-by-central-banks-in-covid-19-crisis-but-risks-still-remain
The DBRS Morningstar group of companies consists of DBRS, Inc. (Delaware, USA) (NRSRO, an affiliate of DRO); DBRS Limited (Ontario, Canada) (DRO, an affiliate of NRSRO); DBRS Ratings GmbH (Frankfurt, Germany) (EU CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales) (UK CRA, subsidiary of NRSRO, subsidiary of DRO). For more information on regulatory registrations, recognitions and approvals of the DBRS Morningstar group of companies, please see: https: // www.dbrsmorningstar.com/research/highlights.pdf. The DBRS Morningstar group of companies is a wholly owned subsidiary of Morningstar, Inc. © 2021 DBRS Morningstar. All rights reserved. Information on which DBRS Morningstar ratings and other types of credit opinions and reports are based is obtained by DBRS Morningstar from sources that DBRS Morningstar believes to be reliable. DBRS Morningstar does not audit the information it receives as part of the analytical process, and it does not and cannot independently verify this information in each case. The extent of any factual investigation or independent verification depends on the facts and circumstances. DBRS Morningstar Ratings, other types of credit advisories, reports and any other information provided by DBRS Morningstar are provided “as is” and without representations or warranties of any kind. DBRS Morningstar hereby disclaims any representation or warranty, express or implied, as to the accuracy, currency, completeness, merchantability, fitness for a particular purpose, or non-violation of such information. In no event will DBRS Morningstar or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Morningstar Representatives) be held responsible (1) for any inaccuracies, delays, loss of data, interruption of service, error or omission or for any damage resulting therefrom, or (2) for any direct, indirect, accidental, special, compensatory or consequential damage resulting from any use of the evaluations and staff reports or resulting from an error (by negligence or otherwise ) or any other circumstance or contingency within or beyond the control of DBRS Morningstar or any representative of DBRS Morningstar, in connection with or relating to the obtaining, collection, compilation, analysis, interpretation, communication , publication or delivery of such information. No entity of DBRS Morningstar is an investment advisor. DBRS Morningstar does not provide investment, financial or other advice. Ratings, other types of credit opinions, other analysis and research issued or published by DBRS Morningstar are, and should be construed as, statements of opinion only and not statements of fact regarding creditworthiness, investment advice. , financial or other advice or purchase recommendations. , sell or hold securities. A report on a DBRS Morningstar Rating or other credit opinion is neither a prospectus nor a substitute for the information gathered, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS Morningstar may receive compensation for its ratings and other credit opinions of, among https://www.dbrsmorningstar.com/disclaimer/ others, issuers, insurers, guarantors and / or underwriters of debt securities. DBRS Morningstar is not responsible for the content or operation of any third party web sites accessible by hypertext or other computer links and DBRS Morningstar is not responsible to any person or entity for the use of such third party web sites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS Morningstar. ALL DBRS MORNINGSTAR RATINGS AND OTHER TYPES OF CREDIT ADVICE ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS ON https://www.dbrsmorningstar.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS MORNINGSTAR RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, IS AVAILABLE AT https://www.dbrsmorningstar.com. Users may, through hypertext or other computer links, access websites operated by persons other than DBRS Morningstar. These hyperlinks are provided for informational purposes only and are the sole responsibility of the owners of these websites. DBRS Morningstar does not endorse the content, operator or operations of third party websites. DBRS Morningstar is not responsible for the content or operation of such websites and DBRS Morningstar is not responsible to you or any other person or entity for the use of third party websites.