The growth of shadow banking has been associated with economic growth in recent years Adjusted for exchange rate effects, jurisdictions with a greater increase in shadow bankin assets between 2010 and 2014 tended to have greater increases in gDP over the same time period. As indicated by the dots above the 45-line in the right panel of Exhibit 4, shado banking assets grew faster than GDP since 2010 in most of the 26 jurisdictions. Strong growth in shadow banking may occur from a low base and contribute to financial deepening, in particular in EMEs with relatively less developed financial systems. However, careful monitoring is still warranted to detect any increases in systemic risk factors(e.g. maturity and liquidity transformation, and leverage) that could arise from the rapid expansion of credit relative to gDP provided by the non-bank sector 2.3 Cross-jurisdiction analysis This section describes the considerable heterogeneity that exists across individual jurisdictions. It focuses on the new measure of shadow banking based on economic functions, whereas in past reports it focused on the broader measure based on OFIs The United States continued to have the largest shadow banking sector, with $14.2 trillion in 2014, representing more than a third of global shadow banking assets reported by the 26 jurisdictions (right panel of Exhibit 5). The United Kingdom had the second largest shadow banking sector, amounting to $4. 1 trillion, while the next 29% of shadow banking was concentrated in four jurisdictions in Asia and Europe. Combined, participating euro area countries represented 23% of total global shadow banking assets in 2014 Share of shadow banking assets Exhibit 5 At end-2010 At end-2014 MEs ex 2% NL 4% 41% 40% 7% DE 13%% UK lE Note: CA=Canada: CN= China: DE Germany: EMEs ex CN= Argentina, Brazil, Chile, India, Indonesia, Mexico, Russia, Turkey, Saudi Arabia, South Africa, FR= France: IE Ireland; JP= Japan; KR= Korea; NL= Netherland; UK= United Kingdom: US= United States. Sources: National financial accounts data: other national sources: fsB calculations. 24 In previous reports, the cross-sectional analysis focused on the broader measure based on OFIs, incorporating that were then later removed as part of a narrowing down process to arrive at a more accurate narrower measu shadow banking sector. See Box I for this years narrowing steps, linking the broad measure of non-bank re of the intermediation based on OF ls to the narrow measure of shadow banking based on economic functions 25 Participating euro area countries are France, Germany, Ireland, Italy, Netherlands and Spain11 The growth of shadow banking has been associated with economic growth in recent years. Adjusted for exchange rate effects, jurisdictions with a greater increase in shadow banking assets between 2010 and 2014 tended to have greater increases in GDP over the same time period. As indicated by the dots above the 45°-line in the right panel of Exhibit 4, shadow banking assets grew faster than GDP since 2010 in most of the 26 jurisdictions. Strong growth in shadow banking may occur from a low base and contribute to financial deepening, in particular in EMEs with relatively less developed financial systems. However, careful monitoring is still warranted to detect any increases in systemic risk factors (e.g. maturity and liquidity transformation, and leverage) that could arise from the rapid expansion of credit relative to GDP provided by the non-bank sector. 2.3 Cross-jurisdiction analysis This section describes the considerable heterogeneity that exists across individual jurisdictions. It focuses on the new measure of shadow banking based on economic functions, whereas in past reports it focused on the broader measure based on OFIs. 24 The United States continued to have the largest shadow banking sector, with $14.2 trillion in 2014, representing more than a third of global shadow banking assets reported by the 26 jurisdictions (right panel of Exhibit 5). The United Kingdom had the second largest shadow banking sector, amounting to $4.1 trillion, while the next 29% of shadow banking was concentrated in four jurisdictions in Asia and Europe. Combined, participating euro area countries25 represented 23% of total global shadow banking assets in 2014. Share of shadow banking assets 26 jurisdictions Exhibit 5 At end-2010 At end-2014 Note: CA = Canada; CN = China; DE = Germany; EMEs ex CN = Argentina, Brazil, Chile, India, Indonesia, Mexico, Russia, Turkey, Saudi Arabia, South Africa; FR = France; IE = Ireland; JP = Japan; KR = Korea; NL = Netherland; UK = United Kingdom; US = United States. Sources: National financial accounts data; other national sources; FSB calculations. 24 In previous reports, the cross-sectional analysis focused on the broader measure based on OFIs, incorporating elements that were then later removed as part of a narrowing down process to arrive at a more accurate narrower measure of the shadow banking sector. See Box 1 for this year’s narrowing steps, linking the broad measure of non-bank financial intermediation based on OFIs to the narrow measure of shadow banking based on economic functions. 25 Participating euro area countries are France, Germany, Ireland, Italy, Netherlands and Spain. EMEs ex CN 4% CN 2% NL 2% KR 1% CA 2% FR 6% JP 10% DE 7% IE 7% UK 13% US 41% EMEs ex CN 4% CN 8% NL 2% KR 2% CA 3% FR 4% JP 7% DE IE 7% 8% UK 11% US 40%