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Regulators may be seeing a distorted picture of global credit markets because they are failing to fully account for "fintech shadow banks", Amit Seru said in recent remarks. The professor of finance at Stanford University told an audience of central bankers in Basel that lending originating in the shadow banking sector had "dramatically increased" in recent years. Many of these firms were taking advantage of financial technology and lighter regulations to grow rapidly, he said.

This paper maps the global shadow payment system and identify what mechanisms, if any, SPPs use to protect their customers. Examining the business models and customer contracts of over 100 SPPs, the paper suggests that, at least from a consumer protection perspective, SPPs are currently not an effective substitute for bank-based payment systems.

Relative to other shadow banks, fintech lenders serve more creditworthy borrowers and are more active in the refinancing market. Fintech lenders charge a premium of 14-16 basis points and appear to provide convenience rather than cost savings to borrowers.

A swathe of shadow banks in the $1.6 trillion cryptocurrency market have figured out how to generate returns of 12% with minimal risk: Lend U.S. dollars to hedge funds so they can buy Bitcoin.

In a case pending in the Second U.S. Circuit Court of Appealsthe lawsuit, New York financial-services superintendent Linda Lacewell claims a company can't be a bank unless it accepts deposits, no matter that it offers other traditional bank services. According to the U.S. Office of the Comptroller of the Currency (OCC) this claim is legally and historically wrong, as well as risky. The OCC determines which companies qualify for charters as national banks or federal savings associations and supervises their activities. It contends that consumer protection and the safety and soundness of the U.S. financial system are at risk if the lawsuit succeeds, as services that formerly were subject to federal supervision are increasingly occurring in the shadow banking sector, outside the OCC's regulatory oversight.

A payments revolution has prompted a proliferation of shadow digital money. This money is unsound. It is not insured by the government, nor is it backed by safe assets. Federal regulation is needed to guarantee safety and soundness, to restore full monetary control to the Federal Reserve, and to prevent a race to the bottom between competing state and federal regulatory regimes. The OCC should recommend that Congress enact new legislation that requires MSBs to back their monetary liabilities 1:1 with bank deposits. With this change, innovation in payments would be just that-innovation in payments-and not also unauthorized and unsound money issuance.

"Let's take a look at one of the biggest stablecoins in crypto, the USDC token. Using a few specific examples, we will show: (1) stablecoins are regularly used by dubious actors to move massive sums of money internationally with minimal oversight, (2) stablecoins are regularly used in fraudulent transactions, and (3) stablecoin issuers provide shadow banking services for other crypto entities that are unable to access traditional banking services. "

Sveriges Riksbank published the fourth and final report on its e-krona proof-of-concept (PoC) work ( the report calls it a "technical pilot" but a "pilot" involves real users transferring real central bank digital currency (CBDC) in limited ways). The solution reserves e-krona for offline use in a "shadow" wallet in the online system. The payment instrument in the form of a payment card records the shadow wallet's balance and subsequent offline transactions. The actual e-kronas issued by the Riksbank never leave the online system and only change hands when the payment instruments are synchronized. The report concludes that offline payments are viable, but "a secure and functional offline solution requires a lot of development work on technology, regulations and processes".

A quantitative model of mortgage lending suggests that regulation accounts for roughly 60% of shadow bank growth, while technology accounts for roughly 30%.

A payments revolution has prompted a proliferation of shadow digital money. This money is unsound. It is not insured by the government, nor is it backed by safe assets. Federal regulation is needed to guarantee safety and soundness, to restore full monetary control to the Federal Reserve, and to prevent a race to the bottom between competing state and federal regulatory regimes. Congress should pass new legislation preempting state money service businesses (MSBs), offering federal MSB charters, and authorizing the OCC to establish a special regulatory regime for MSBs that restrict issuers to investing in cash and cash equivalents at banks or the Federal Reserve. With these changes, innovation in payments is just that - innovation in payments-and not also unauthorized and unsound money issuance.

"We develop a dynamic model of stablecoins and crypto shadow banking, where the stablecoin issuer transforms risky assets, including cryptocurrencies, into digital tokens of stable values. Both the stablecoin issuer's reserve assets and users' collateral back the stablecoin. However, even under over-collateralization, a pledge of one-to-one convertibility to a reference currency can be fragile. The distribution of states is bimodal: A fixed exchange rate may persist, but once the stablecoin breaks the buck, the recovery is slow. When negative shocks drain the issuer's reserves, debasement allows the issuer to share risk with users, but it triggers a vicious cycle of depressed stablecoin demand, lower transaction volume and transaction fees, slow rebuild of reserves, and a persistent need for debasement. Stablecoin management requires the optimal combination of strategies commonly observed in practice, such as open market operations, dynamic requirement of users' collateral, transaction fees or subsidies, re-pegging, and issuances of ``secondary units'' that function as the stablecoin issuer's equity. Our model lends itself to an evaluation of regulatory proposals (e.g., capital requirement) and sheds light on the complex incentives behind the stablecoin initiatives led by the network companies (e.g., Facebook)."

A new Bank for International Settlements (BIS) working paper uses a novel global supervisory database of commercial bank cryptocurrency exposures and a range of complementary data sources for other types of institutions to explore the roles of traditional financial intermediaries in cryptocurrency markets and what drives their engagement. It shows that major banks' exposures remain at very modest levels. However, substantial activity is concentrated in lightly regulated crypto exchanges, with this "shadow crypto financial system" serving both retail and institutional clients, such as dedicated investment funds.

Bitcoin's price crash last week has cast a shadow over mining firms, which have spent over half a billion dollars overhauling equipment over the last six months in preparation for the network's next so-called halving.

Going cashless offers societal benefits. Among them are lower costs due to reduced production and handling of coins or banknotes and better financial tracking that can resolve tax gaps and expose shadow economies, International exchange and remittance could also be simplified as digital economies hold promise for unbanked or underserved populations. But the topic is divisive due to clashing stakeholder interests, not to mention risks around data privacy or cyber security.A 2020 survey from The Economist Intelligence Unit sought to uncover more granularity on what those divisive issues are from a user-base perspective.

According to Morgan Stanley's Chief Global Strategist Ruchir Sharma, "even if Bitcoin's price pops, as it has before, the rush of 2020 can't be dismissed as an irrational mania. Cryptocurrencies are still young, they still face growing pains. But they also promise speed, transparency, and low fees that traditional payment channels cannot match. They satisfy a growing demand for a digital alternative to gold, an asset likely to protect investors from massive money printing and the threat of inflation. To younger investors, "crypto" already evokes digital, stable and good, not shadowy and sinister. The rest would be well advised to recognize that the currency world is changing, or risk being left behind."

The emergence of stablecoins is a growing concern for authorities worldwide including Indonesia as it could affect financial stability. Thus, if a central bank chooses to develop a central bank digital currency (CBDC) to tackle this problem, the design should conform to the country's characteristics and consumer needs. This study draws on experts' opinions from various economic agents and utilises an amalgamation of the analytic network process (ANP) and the Delphi method to show that the cash-like CBDC model is the most appropriate digital currency design for Indonesia, since it could enhance financial inclusion and reduce shadow banking in Indonesia.

"Celsius is not an asset manager, it's a shadow bank. And deposits in banks aren't even "customer assets", let alone "assets under management". They are unsecured loans to the bank. They are thus liabilities of the bank and fully at risk in bankruptcy. "

"A venture that's majority-backed by Walmart Inc. is poised to emerge from the shadows this month with digital bank accounts meant for the retail giant's 1.6 million US employees and legions of weekly shoppers. In coming weeks, the company will start offering the accounts to thousands of workers and a small percentage of its online customers as part of an initial beta test of the new service, according to people with knowledge of the matter."

Prepaid cards were being used as shadow currency long before bitcoin was invented. Their current and continuing popularity in crypto (and other communities) is because prepaid offers many advantages over on-chain tokens. Unlike crypto, an electronic retail voucher can be redeemed near-anonymously, instantly, at face value. Use will usually fall below the purview of financial regulators. Purchases and transfers are largely untraceable. Trust rests in a central counterparty, with a multinational corporation acting both as the custodian and the clearing house. Sales are VAT-exempt and the reporting of capital gains is a matter of personal conscience.

"This paper aims to focus, in particular, on two complementary and co-related aspects involving CBCDs: (i) how can the full digitalisation and centralisation of the transaction ledger be combined with privacy and (ii) to what extent CBDCs affect the allocation of burden and the responsibility over supervision of retail transactions. Eminently, the use of cash ensures a form of default privacy that protects the individual against State and private intrusion. While this privacy has caused concern, due to its criminogenic potential, and has been consequently limited by anti-money laundering (AML) regulations, the remaining cone of shadow cash guarantees is a crucial limit to control. In the context of a shifting financial system, undergoing deep transformation due to increasing datafication and decentralisation of the market, a new governance of financial supervision and record-keeping-up to now based on a unique and centralised ledger-is crucial to redefine the trade-off between financial integrity and privacy. This article will examine the origins and characteristics of CBDCs, to then analyse how the trade-off between control and privacy is set to reshape this new architecture."