New research from the New York Federal Reserve attempts to shed some light on the so-called shadow banking system, the vast network of lightly-regulated financial firms that failed spectacularly during the credit crunch. This is no easy task, as a series of headache-inducing flowcharts proves (a small excerpt from the paper’s coup de grace, on p3, is below; FT Alphaville, meanwhile, attempts to distil the paper’s findings in cartoon form). The paper itself is also somewhat mysterious, as the authors note that the first 70 pages are intended as an “executive summary” of a 230-page tome to which a full table of contents is provided but no further pages are published.

The Fed researchers define shadow banks as “financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees.” At their peak, shadow banks amassed liabilities of nearly US$20trn, some US$8trn more than the traditional banking system. These intermediaries fuelled the subprime credit boom with cheap funds by converting “opaque, risky, long-term assets into money-like and seemingly riskless short-term liabilities,” the authors write. Of course, at the first signs of distress this seemingly riskless source of funds was found to be anything but.