US banks have loaned $1 trillion to less regulated 'shadow banks'

• US banks have given out $1 trillion of loans to non-regulated "shadow banks."
• Regulators said that these alternative lenders increase banks' exposure to higher risk debt.

The amount of loans made by US banks to less regulated shadow lenders surpassed $1 trillion in January.

Outstanding loans to non-depository financial entities like private equity firms and hedge funds reached $1.0024 trillion last month, representing a roughly 12.16% year-over-year surge from January 2023, according to data released by the US Federal Reserve on Friday. It has become one of banking's fastest-growing businesses at a time when lending volumes overall are growing at a slower rate.

The sharp rise in lending to shadow banks has raised concerns among regulators over potential systemic risks, The Financial Times said on Monday.

These so-called shadow banks are often less regulated, and many lend money to enterprises where returns may be greater but risks are much higher than what a regulated institution would be able to tolerate.

Experts told the FT that such loosely regulated financial institutions have exposed banks to lower-quality loans.

Major banks have steadily ramped up lending to less regulated finance companies. The FT notes that since 2010, when banks were first required to report the volume of loans made to non-bank lenders, the share of financing to shadow banks has reached 6% of all bank lending, more than auto lending and not far below credit card debt.