Shadow banking is a topic that has the attention of observers and regulators world wide.
It is often cited as having the potential to threaten financial stability of whole economies. China is often cited, but in fact it is an exposure in almost every country.
But what is the exposure in New Zealand?
And who exactly are these 'shadow banks'?
This page is an attempt to keep an inventory of New Zealand's overall exposure to 'shadow banking'.
But first, we must define what it is and what it is not.
Shadow banking generally refers to credit intermediation activities performed outside of the banking system. On the plus side, shadow banks increase overall credit availability, providing more sources of liquidity, thereby supporting economic growth and diversifying risk across the financial system.
On the negative side, while shadow banks can take on similar risks to banks, they are not subject to the same risk controls required by bank regulators because they do not take in deposits; further, shadow banks do not have the benefit of government backstops that are intended to prevent runs and panics and ensure financial market stability.
Regulation for shadow banks remains much less robust than it does for banks. In particular, the capital, leverage and liquidity reforms that have been implemented post the financial crisis apply only to banks, allowing shadow banks to take on higher levels of risk. In New Zealand, some non-bank institutions may be "registered" (by the Companies Office/DIA, the FMA, the RBNZ) and all are subject to New Zealand law (competition, consumer credit, etc.) but they are not subject to the same intensive scrutiny by the RBNZ as registered banks.
Non-bank financial institutions may be banked by a regulated bank who may also supply credit. That relationship will involve lending criteria and covenants
The global shadow banking sector is growing, fuelled by the increased regulation for banks, combined with an increase in the overall demand for credit, as well as appetite for innovative, technology-based products. The same is true for New Zealand. Investors, both institutional and retail, searching for yield in the low interest rate environment have provided the necessary funding for the sector’s expansion.
Here is how the IMF defines shadow banking.
Here is an international perspective.
The following table attempts to inventory New Zealand's shadow banking sector. It is a work-in-progress and updates, additions, or corrections are welcome. (Please send them to feedback@interest.co.nz )
| Sector | Company | Assets | as at | |
| Updated 26 April 2016 | NZ$ mln | |||
| Mortgage lending | Liberty Finance | ??? | 2016 | |
| Resimac | ??? | 2016 | ||
| Nelson Building Society | 558.7 | 2016 | ||
| First Mortgage Trust | 353.8 | Mar-2016 | ||
| Wairarapa Building Society | 139.2 | Mar-2016 | ||
| --------- | ||||
| This list total | 1,051.7 | |||
| Asset lending | UDC Finance | 2,665.0 | Sep-2016 | |
| Toyota Finance | 1,069.5 | Mar-2016 | ||
| EFN NZ (ex GE Capital) | 982.3 | Dec-2016 | ||
| Motor Trade Finance | 596.5 | Sep-2016 | ||
| Mercedes Benz Finance | 567.0 | Dec-2016 | ||
| Fuji Xerox Finance | 443.5 | Mar-2016 | ||
| BMW Finance | 358.2 | Dec-2016 | ||
| Nissan Financial | 302.3 | Mar-2016 | ||
| LeasePlan NZ (ex GE Capital) | 300.4 | Dec-2016 | ||
| Avanti Finance | 245.4 | Mar-2016 | ||
| ORIX NZ | 229.9 | Mar-2016 | ||
| TRL Leasing (FlexiGroup) | 210.0 | Jun-2016 | E | |
| John Deere Financial | 157.9 | Oct-2016 | ||
| Medical Securities | 141.2 | Mar-2016 | ||
| Instant Finance | 99.4 | Mar-2016 | ||
| ASAP Finance (Darpan Patel) | ??? | |||
| DBR Property Finances (Darryl Eastgate) | 50.0 | E | ||
| -------- | ||||
| This list total | 8,418.5 | |||
| Peer-to-Peer lending | on Harmoney platform | ??? | ||
| on Squirrel Money platform | ??? | |||
| on Lending Crowd platform | ??? | |||
| on Lend Me platform | ??? | |||
| (plus Citizens Brokerage and Southern Cross Partners) | ||||
| --------- | ||||
| This list total | ??? | |||
| Personal lending | NZCU Baywide | 293.6 | Jun-2016 | |
| First Credit Union | 334.4 | Jun-2016 | ||
| Police & Families Credit Union | 118.8 | Jun-2016 | ||
| NZCU South | 129.9 | Jun-2016 | ||
| Latitude Financial (ex GE Money) | ??? | |||
| FlexiGroup (ex F&P Finance) | 786.2 | Dec-2016 | ||
| -------- | ||||
| This list total | 1,662.9 | |||
| ==================== | ====== | |||
| Total this page | Shadow banking assets | $ 11,133.1 |
It is pretty clear that the shadow banking sector in New Zealand does not dominate our formal banking system, nor is it large enough to pose a financial stability threat. By comparison, regulated banks in New Zealand had assets of NZ$510.3 bln as at the end of 2016, or more than 45 times as much as we have identified in the table above.
It is also clear that we do not know the full extent of the non-bank financial sector in New Zealand and this page is a place to keep an eye on it and it add to our knowledge of it. We ask readers to send any updates.