The shadow banking system is down but not out. That's the conclusion reached by the Deloitte Center for Financial Services in a new report that examines the scope and the relevance of a sector that has received its fair share of blame for causing the financial crisis.Deloitte says that assets controlled by the shadow banking system — including ABS and MBS —have declined by more than 50% in the last four years, to $9.53 trillion at Dec. 31. As a result of this sharp decline, the traditional banking sector that four years ago was smaller than the shadow banking system is now roughly $8 trillion larger, according to Deloitte.
The report's authors said they expect the shadow banking system to remain suppressed in the near-term due to the volatile state of the economy and an uncertain regulatory climate. But, they added, "it is unlikely it will cease to exist; repurchase agreements and securities lending, to name two components, are vital to the functioning of a modern financial system and will likely bounce back eventually."