A Look At Shadow Banking In China + MORE Mar 24th

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While Finance Minister Jim Flaherty’s unexpected decision to resign stole the headlines yesterday, the bigger story may turn out to be the Bank of Canada cautioning Canadians to get used to slower growth, largely as a result of an aging population.
Baby boomers, far and away Canada’s largest demographic group, are retiring – or at least gearing up for it. And while putting more money aside for their future makes sense, this saving rather than spending mentality will have clear economic implications, Bank of Canada Governor Stephen Poloz told the Halifax Chamber of Commerce on Tuesday.
Too many boomers in the developed world have been putting their money into real estate compared with more productive uses such as business investment that can stimulate the economy. And Canada, it seems, is no different.
Real Estate Partiality Slows Growth
“When a large swath of the population is making similar decisions, the impact on the broader economy can be significant,” Poloz explained. “Savings that fund infrastructure and business investment are ‘being put to work,’ which can help improve productivity, while savings that go into housing are seen as contributing less to productive potential…

The term Shadow Banking can evoke ideas of an elusive, secretive method for money to be exchanged. It actually is the opposite and really represents a large part of global banking.
Shadow banking is a method used to provide money to businesses that are unable to get a loan from a traditional bank.
Wall Street Journalist Tony James calls it “market-based financing” and adds it “is simply the provision of capital by loans or investments to some companies by other companies that are not banks.”
Shadow banking is huge in China – and there’s concern that it is growing at an unsustainable rate, with implications that will be felt around the globe.
How Does Shadow Banking Work?
Shadow banking links people who need money to those who have it, with the rate of the loan determined by market factors and the risk posed by the client.
These loans are usually offered at a higher interest rate and to individuals who don’t qualify with a formal bank.  The International Monetary Fund is not a supporter of shadow banking stating, “Shadow banking, in fact, symbolizes one of the many failings of the financial system leading up to the global crisis…