World Bank Warns on Shadow Banking Of Chinese Debt

Helmholtz Watson

Bank of France Governor Francois Villeroy de Galhau in a France Inter radio interview on Saturday.

Specialized investors have stepped in to swell the European Union’s shadow-banking system to more than 42 trillion euros ($49 trillion) in assets at the end of 2017, or about 40 percent of the bloc’s financial system, according to the European Systemic Risk Board.

Francois Villeroy de Galhau said
“One of the main risks we have to look at today is outside the banking system, it’s what we call shadow banking, which has been less regulated. It’s the big investment funds, they are partly American. We have to strengthen things in this area because it’s been a bit forgotten as regulation has been strengthened.”

Corporate and household debt was at 190 percent of worldwide gross domestic product in 2001, rising to 210 percent in 2007 as the financial crisis began. Since then it has continued rising to 240 percent, he said.

“Advanced economies have seen it reduce a bit, and it has risen a lot in emerging countries,” Villeroy said.

Asked if he saw a “risk of contagion,” the central bank governor said: “Today, we don’t see it. I think of China, where Chinese authorities have the means to act, but we have to be extremely vigilant: everywhere rising debt means rising risks.”