“We have truly become a global economy.  Social media and technology have paved the way for us to conduct business overseas as easily as doing so in our hometown.  The GFC2017 Conference & Expo provides essential education and training for all global businesspeople to succeed.”  – Elinor Stutz, www.smoothsale.net

Shadow Banking, Derivatives, and Other Hidden Potential Catastrophes in Global Credit


Joe El Rady, Managing Member, The El Rady Group

Are you aware that Wall Street banks are generating billions of dollars per year through opaque, complicated, and largely  unregulated  activities  that  few  people,  even  within  the  financial  community,  understand?  In  the  wake  of the  2007-2009  financial crisis,  regulators  tightened  their  oversight  on  traditional  banking  institutions. As  a result, risky lending migrated  to  a  darker,  hidden corner  of  the  financial  system  known  as  the  shadow  banking industry. This  sector,  which  includes  exchange-traded  funds,  structured  investment  vehicles,  and  hedge  funds,  now  owns more  than US$75  trillion  in  assets.  While  shadow  banks  engage  in  many  activities,  they  reap  their  largest  profits from the enormous financial roulette table known as derivatives. Originally designed to hedge risk, the derivatives market  today  has mushroomed into  a mountain  of  speculation  never  before  seen  in  world  economic history. The estimated  notional  value  of  the  worldwide  derivatives  market  exceeds  US$600  trillion,  and  may  top US$1.5 quadrillion, 40 times the  aggregate value of all of the world’s stock markets, and more than 20 times the value of aggregate  global  GDP.  Risky  lending  and  Derivatives  were  at  the  center  of  the  financial  crisis  of  2008.  They  will almost  certainly  be  at  the  center  of  the  next  financial  crisis  as  well,  and  no  government  in  the  world  will  have enough money to fix it this time.

Learning Objectives:

  • Understanding the shadow banking sector: listing its activities, identifying its participants, and specifying its role in the wider credit market
  • Comparing and contrasting the helpful and dangerous, risk mitigating and risk creating, activities of shadow banks and uses of derivatives
  • Contrasting the differences in liquidity and risk mitigation between shadow banks and traditional banks
  • Understanding the differences in credit creation and leverage multiplication between traditional and shadow banks
  • Identifying the differences in regulation and oversight between shadow banks and traditional banks
  • Learning about different derivative instruments, how they function, why they are used, and how they are structured

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