Gillian Tett | Shadow spreading across international banking

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Gillian Tett | Shadow spreading across international banking

Gillian Tett is looking at investment firms and hedge funds and explains how ‘non-banking’ (and non-regulated) firms are expanding rapidly and taking business from the banks that are now being more highly regulated. They’re also lining up to buy up state assets and it seems are preparing the way for future crisis.  She also tells the story of Annaly… ‘originally a mid-sized real estate investment trust’ it has in ‘the past three years – or since the financial crisis erupted – grown its assets to more than $110bn’, about the size of a small bank.

Thus Annaly is gobbling up loans being shed by the large banks. It is also providing finance to mortgage companies. Next it hopes to start purchasing the assets currently held by state entities, when these are sold in the coming years. And it is far from alone: a host of Annaly-style funds are now also applying for licences with the SEC, to pursue similar activities. The private equity group TPG is now moving into the business of middle-tier corporate lending. And Fortress, another large private equity firm cum hedge fund, is chasing similar opportunities, along with some hedge funds.

This trend leaves some observers fretting about new systemic risks. “It is crazy what is going on – business is being pushed out of the regulated banks into parts of the system that regulators cannot see,” complains one of Wall Street’s most senior lawyers. But Annaly, for its part, denies this: they argue that because they are answerable to hands-on investors, rather than distant regulators, it makes them more – not less – prudent in managing credit risk.

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Donagh is the editor of Irish Left Review. Contact Donagh through email: