Hedge funds are the new ‘shadow banks’—and some are worried they pose a systemic threat to financial stability

Two employees carry a Lehman Brothers sign in front of a Christie's auction house. (Credit: Oli Scarff—Getty Images)

• “Shadow banking” now accounts for $250 trillion, or 49% of the world’s financial assets, according to the Financial Stability Board. Hedge funds manage 15 times as many assets combined as they did in 2008. The recent spike in bond yields—caused by hedge funds unwinding heavily leveraged trades—has some people worrying this largely unregulated business could pose a 2008-style threat to the financial system.

Economist Paul McCulley coined the term “shadow banking” in 2007, just over a year before Lehman Brothers collapsed. Soon it became clear that easy credit had helped fuel the subprime mortgage meltdown that brought the global financial system to its knees. Nearly two decades later, a bond market selloff triggered by President Donald Trump’s chaotic tariff rollout has sparked fears of a similar liquidity crisis.