'Shadow banking' could lead us into an apocalypse like 2008

Alarm bells are ringing about the private credit market and 'cockroaches' in the system — the time to act is now

- Chris Blackhurst

It was inevitable really. After all, the banking crash of 2008 was 17 years ago and many of the main actors have left the stage. The new generation cannot be expected to pay heed to the lessons from back then. The world has moved on, live with it.

Many, but not all. And you might suppose the current banking whizzes would be required to absorb what unfolded and almost brought the world's financial system to its knees, resulting in taxpayer-funded bailouts running into hundreds of billions and the loss of tens of thousands of jobs. You would be wrong, of course. Even though something that is taught in the City and on Wall Street, is that everything is cyclical, what comes round comes round, shares can go down as well as up and if it's too good to be true that's because it usually is. Yeah, yeah. Save it for the old folk. We know best, we're in charge now.

So, here we are less than 20 years later and the governor of the Bank of England, who was very much around in 2008 as the Bank's chief cashier, is worried. Andrew Bailey has told the House of Lords Financial Services Regulation Committee that he is beginning to see flashing warning signs. In particular he is observing "what used to be called slicing and dicing and tranching of loan structures".

"If you were involved before the financial crisis or during it, alarm bells start going off at that point," he said.

Those were practices adopted by some bankers to wrap up risky subprime loans and make them sellable to investors. Punters, to use their expression, thought they were putting their cash into a financial product that was safe and secure and it was anything but. Once economic conditions changed and borrowers were unable to meet their repayments, the whole edifice came hurtling down - what appeared concrete proved to be sand.