Thus, shadow banking does not have a number of critical masses which may be useful for different reasons such as meeting for the overnight deposits of cash. It is also important to have the non-depository credit intermediaries which were of the non-bank finance.The shadow banking didn’t have a critical mass to pose a systematic approach. For example, in Canada, the rise of the shadow banking represents 37 of the total banking liabilities. The risk lies primarily in the NHA market. This risk is not isolated.
Around two types of the total debt amount consist of mortgages (Xianrong, 2009). In Canada there may be a broader securitization which exposes the credit risks to many counterparts’ banks to the different mortgages based portfolios (Gennaioli et al, 2013). This also includes the banks and the insurers of the mortgages. The federal government may also be exposed because of the explicit backing of the mortgage insurance. This is done primarily by the Canadian Mortgage Corporation (Mehrling et al, 2013).
Various federal regulators have also led to the introduction of the regulatory changes to the insured mortgages related to the maximum amortization period, more strange and stringent income testing standards, maximum ratios of loan to value. Each one of them would have weighed heavily on the riskier mortgage which is given in the recent times. In spite of the continuation of the home sales activity and the growth of price across the nation, the slowest pace had been reached in 2001 (Singh et al, 2010).
The shadow banking system in Canada consists of smaller banks. The market based asset related securities, asset based commercial paper and money market mutual funds are smaller and have also fallen since 2008. Since then, there was a significant growth of the repos and short-term papers which had grown in sizes. The repos and the short term papers were critical instruments which have been used by different companies for different reasons. This may also include the meeting for the overnight cash deficits. The non-depository credit intermediates held just over 4 % of the total outstanding credit and even less business credit.