Instructions

Read the following passage carefully and answer the questions.
The term "shadow bank" was coined in 2007 to describe risky off-balance-sheet vehicles hatched by banks to sell loans repackaged as bonds. Today, the term is used more loosely to cover all financial intermediaries that perform bank-like activity but are not regulated as one. These include mobile payment systems, pawnshops, peer-topeer lending websites, hedge funds and bond-trading platforms set up by technology firms. Among the biggest are asset management companies. In 2013 investment funds make such loans raised a whooping $97 billion worldwide. The Financial Stability Board, an international watchdog estimates that globally, the informal lending sector serviced assets worth $80 trillion in 2014 up from $26 trillion more than a decade earlier. Shadow banks have flourished in part because the traditional ones, battered by losses incurred during the financial slump, are under pressure. Tighter capital requirements and fear of heavy penalties have kept them grounded. In China, where banks are discouraged from lending to certain industries and are mandated to offer frustratingly low interest rates on deposits, non-banks fill the gap. About two-thirds of all lending in the country by shadow banks are in fact 'bank loans in disguise'. Critics worry that unlike banks, which lend against deposits from customers, non-banks loan money using investor's cash and rotating lines of credit. This is especially risky when skittish investors who bet on short term gains withdraw their money at once. But non-bank financing need not always be a bad thing. It offers an additional source of credit to individuals and businesses in countries where formal banking is either expensive or absent. It also take some burden off banks which have big 'maturity mismatches' (the difference between the amount of time a depositor's money is parked in the bank minus the time that it is loaned out). And belatedly, regulators, too, are waking up to the new financial order of shadow banking.Banks must now declare structured investment vehicles on their balance sheets. Authorities are imposing leverage limits on various forms of shadow banks in America and Europe. It is a small start to rein in an industry that accounts for a quarter of the global financial system.

Question 86

Which of the following can be said about banking regulators ?


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