BY BEATRICE FALERI 11/03/2015
On the 10th of March, the EFS welcomed Bilal Hafeez, managing director at Deutsche Bank and global head of FX research, to King’s. Hafeez offered an intriguing insight into the impact of the growth of shadow banking on the global economy.
The talk focused on the pervasive influence that non-banking financial institutions have had over the last twenty years in the global economy.
Hafeez introduced shadow banking through his personal experience: his first years at JP Morgan coincided with the East Asian financial crisis and the bankruptcy of LTCM, an international hedge fund which profited from exploiting anomalies in markets. When Russia defaulted in 1998, only the prompt intervention of the FED could prevent the failing of LTCM to trigger a systemic financial crisis.
In an illuminating time-lapse, Hafeez uncovered the links between the events of the 90s, the .com crash and the early 2008 housing bubble which plummeted the world into its worst recession in history. According to Hafeez, the primacy and increase in size of non-banking institutions is happening due to an incremental demand for credit by small and medium businesses and private borrowers. The shadow banking sector steps in where commercial banks are unable to meet rising demand. This has particularly been the case in Europe, where banks have failed to provide sufficient liquidity in the system due to prevailing uncertainty.
According to Hafeez, the answer to Europe’s stagnating economy is not deregulation. Rather, he argued, fiscal stimulus issued directly from Central Banks to governments is required to boost growth through public investment. Hafeez’s conclusion presents an alternative pathway for poorly-performing European economies at a time where the default policy measure over the past five years has been public austerity. Only time will tell, whether these measures will be adopted.
Also have a look at the 3rd edition of Deutsche Bank’s Konzept on the Greek crisis and eurozone sovereign debt. The writers draw lessons for both investors and policymakers by reflecting on the distant past, the difficult present and uncertain future of the subject. Beyond the changes sweeping though Europe, this issue also helps readers comprehend the seismic shifts in net neutrality regulation, the implications of changing corporate behaviour in Japan, the dizzying pace of technological change affecting the auto industry and the resurgence of cov-lite leveraged loan issuance in America.