Losses are inevitable in banking, but minimizing them is a top goal of any bank. What can be learned from recent losses suffered from financial dealings with two companies, Archegos Capital and Greensill Capital, to steer clear of similar avoidable blows in the future? Shadow banking and transparency are two areas to consider seriously.
India’s banking system has been plagued by shadow banking since the 1990s, when non-banking financial companies sprouted up and grew, creating a financial crisis that is as unique as the country itself. NBFCs perform the same functions as traditional banks but under the radar of regulation, creating the potential for disruption. Recent failures of NBFCs that have spread to the broader economy have prompted regulators to adopt a stricter stance.
So far this year, there appears to be renewed urgency from China’s regulators to get their financial system in order, with shadow banking being specifically put in the crosshairs.