Shadow banks enter a newly uncertain era

U.S. banks are taking a half-step back from the shadows. Loans from their domestic branches to non-depository financial institutions — a motley assortment of private credit and equity funds, mortgage brokers and financial technology upstarts — rose just 3% between the first and second quarters, according to preliminary government data aggregated by KBRA Financial Intelligence. That’s down from a 9% pace a year ago and the slowest growth in at least two years. As so-called shadow banks become increasingly crucial sources of corporate lending, a slowdown in their funding grows more worrying.

Economic growth depends on the free flow of credit. The Federal Deposit Insurance Corporation’s upcoming official release of quarterly data will likely show healthy growth across 18 of the 19 lending segments it follows. The problem is that those figures, focused as they are on depository lenders, will partly miss what has become one of the most important sources of financing. What shows up thus far seems to indicate a shadowy retreat.