Executive summary The shadow banking system can broadly be described as credit intermediation involving entities and activities outside of the regular banking system. Intermediating credit through non-bank channels can have important advantages and contributes to the financing of the real economy, but such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions(e.g. maturity and liquidity transformation, and leverage)and when their interconnectedness with the regular banking system is strong Appropriate monitoring of shadow banking and the application of appropriate policy responses, where necessary, helps to mitigate the build-up of such systemic risks his report presents the results of the fifth annual monitoring exercise using data as of end 2014 for 26 jurisdictions, including Ireland for the first time, and the euro area as a whole, which together account for about 80% of global GDP and 90% of global financial system assets This years report introduces an enhancement to the monitoring methodology as a further step towards narrowing the focus to those parts of non-bank credit intermediation where shadow banking risks such as maturity transformation, liquidity transformation or leverage may occur A new activity-based"economic function" measure of shadow banking has been introduced, based on the high-level policy framework published by the FSB in August 2013 and described in an annex of last year's Global Shadow Banking Monitoring Report. In order to ensure a certain degree of consistency in reporting, all authorities were guided to report non-bank credit intermediation if such activity was considered to give rise to shadow banking risks in at least some jurisdictions. As a result, the narrow measure presented in this year's report may overestimate the degree to which non-bank credit intermediation gives rise to systemic risks Since this was the first time that many jurisdictions took part in the assessment and this remains a work in progress, FSB members will continue to deepen their understanding of shadow banking and any potential risks through greater data availability and information- sharing. As such, the narrow measure of shadow banking may be subject to some degree of change in future reports I Some authorities and market participants prefer to use other terms such as"market-based financing "instead of"shadow banking". The use of the term"shadow banking"is not intended to cast a pejorative tone on this system of credit intermediation. However, the FSB is using the term"shadow banking" as it is the most commonly employed and, in particular, has been used in previous G20 communications 2Previousshadowbankingmonitoringreportscanbefoundathttp://www.fsborg/publications/r141030.pdf, ttp//www.fsborg/publications/r131114.pdf,http://www.fsb.org/wp-content/uploads/r121118c.pdf,and http://www.fsborg/publications/r111027a.pdf 3 These figures, which apply to the 20+EA-group(see Footnote 4), were calculated from the statistical appendix of the IMF's Global Financial Stability Review, April 2015 4 Two samples are presented in this report. The first sample, which for ease of reference we denote the 26-group, is comprised of 26 reporting jurisdictions (including six individual euro area countries). The second sample, denoted 20+EA-group, comprises 20 individual non-euro area jurisdictions and the euro area aggregate. The 26-group is more ranular in terms of sector-level data and is therefore used to calculate the narrow measure of shadow banking based on economic functions(Section 2). The 20+EA-group has a wider scope in terms of jurisdiction coverage and is used to calculate the broad measure of non-bank financial intermediation(in most of Section 4) There were also cases in which authorities considered types of financial intermediation in their jurisdictions to be sufficiently distinct to warrant exclusion from the narrow measure. Annex I provides a review of the material exclusions made by authorities and authorities rationale for such exclusions1 Executive summary The shadow banking system can broadly be described as credit intermediation involving entities and activities outside of the regular banking system.1 Intermediating credit through non-bank channels can have important advantages and contributes to the financing of the real economy, but such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions (e.g. maturity and liquidity transformation, and leverage) and when their interconnectedness with the regular banking system is strong. Appropriate monitoring of shadow banking and the application of appropriate policy responses, where necessary, helps to mitigate the build-up of such systemic risks. This report presents the results of the fifth annual monitoring exercise using data as of end- 2014 for 26 jurisdictions, including Ireland for the first time, and the euro area as a whole, which together account for about 80% of global GDP and 90% of global financial system assets.2,3,4 This year’s report introduces an enhancement to the monitoring methodology as a further step towards narrowing the focus to those parts of non-bank credit intermediation where shadow banking risks such as maturity transformation, liquidity transformation or leverage may occur. A new activity-based “economic function” measure of shadow banking has been introduced, based on the high-level policy framework published by the FSB in August 2013 and described in an annex of last year’s Global Shadow Banking Monitoring Report. In order to ensure a certain degree of consistency in reporting, all authorities were guided to report non-bank credit intermediation if such activity was considered to give rise to shadow banking risks in at least some jurisdictions. 5 As a result, the narrow measure presented in this year’s report may overestimate the degree to which non-bank credit intermediation gives rise to systemic risks. Since this was the first time that many jurisdictions took part in the assessment and this remains a work in progress, FSB members will continue to deepen their understanding of shadow banking and any potential risks through greater data availability and information￾sharing. As such, the narrow measure of shadow banking may be subject to some degree of change in future reports. 1 Some authorities and market participants prefer to use other terms such as “market-based financing” instead of “shadow banking”. The use of the term “shadow banking” is not intended to cast a pejorative tone on this system of credit intermediation. However, the FSB is using the term “shadow banking” as it is the most commonly employed and, in particular, has been used in previous G20 communications. 2 Previous shadow banking monitoring reports can be found at: http://www.fsb.org/publications/r_141030.pdf; http://www.fsb.org/publications/r_131114.pdf; http://www.fsb.org/wp-content/uploads/r_121118c.pdf, and http://www.fsb.org/publications/r_111027a.pdf. 3 These figures, which apply to the 20+EA-group (see Footnote 4), were calculated from the statistical appendix of the IMF’s Global Financial Stability Review, April 2015. 4 Two samples are presented in this report. The first sample, which for ease of reference we denote the 26-group, is comprised of 26 reporting jurisdictions (including six individual euro area countries). The second sample, denoted 20+EA-group, comprises 20 individual non-euro area jurisdictions and the euro area aggregate. The 26-group is more granular in terms of sector-level data and is therefore used to calculate the narrow measure of shadow banking based on economic functions (Section 2). The 20+EA-group has a wider scope in terms of jurisdiction coverage and is used to calculate the broad measure of non-bank financial intermediation (in most of Section 4). 5 There were also cases in which authorities considered types of financial intermediation in their jurisdictions to be sufficiently distinct to warrant exclusion from the narrow measure. Annex 1 provides a review of the material exclusions made by authorities and authorities’ rationale for such exclusions