Financial Times

How the Fed Increased Its Exposure to Shadow Banks | FT #shorts

The Federal Reserve has expanded its oversight by launching the Enhanced Financial Accounts, a comprehensive database that catalogs who owes what to whom across the U.S. financial system. This initiative shines a light on the growing web of liabilities that extend beyond traditional banks into the shadow‑bank sector. The latest data show a notable shift: the U.S. Treasury is increasingly borrowing from hedge funds and other non‑bank lenders, while household debt owed to shadow banks ballooned ahead of the 2007 crisis. By mapping these interconnections, the Fed can spot concentrations of risk that regulators previously missed when focusing solely on regulated banks. Analysts point to the Treasury’s reliance on shadow banks as a concrete example of how government financing is now tied to hedge‑fund basis traders. The Fed’s own commentary underscores the danger of “chain‑reaction defaults” if multiple non‑bank entities were to fail simultaneously. For investors and policymakers, the enhanced transparency signals that the Fed is taking a proactive stance to mitigate systemic risk. Monitoring shadow‑bank exposures could shape future regulatory actions and influence market expectations about credit availability and sovereign borrowing costs.