If it weren’t for the inarguable fact that global regulators have no sense of humor, I would have thought the FSB loosed its shadow-banking report the day before Halloween on purpose. Both the data in the report and the continued inability of the FSB to come up with any conclusions based on it scares me more than any group of kids dressed up in Elsa and Optimus Prime costumes.

We sent you a detailed report today on what the FSB found, so I won’t reiterate 2013’s overall findings. Suffice it here to say that shadow banking as the FSB measures it grew by 6.6 percent, now totaling $75 trillion or 25 percent of total global financial assets. Banks don’t control the rest of these – the FSB says they have about $130 trillion or 46 percent.

The murky territory between what the FSB defines as the shadows and the rest of the global financial system is my first major difference with this paper. On the one hand, the FSB now corrects a problem I and others long have highlighted with the past approach: it lumped in activities like securitization regardless of whether it occurred in or out of banks and thus treated regulated activities as shadowy if the activity was within the definitional scope of the “shadows.” This might enhance the FSB approach – the new, narrower shadow definition is only $35 trillion, but narrowing the shadows only enlarges the uncharted territory between it and the regulated banking sector. Given that the FSB measures the global total financial assets as some $300 trillion, the difference between banking and the rest of what isn’t regulated amounts to somewhere in the neighborhood of $170 trillion.

To be sure, not all financial assets are bank-equivalent and banks hold many non-financial assets that raise a lot of risk not captured in the shadow analysis. But, a focus only on assets masks so large and critical a part of the shadows as to make clear what’s so wrong with the FSB’s approach.

What’s missing are liabilities. Some liability products like mutual funds are in the FSB mix, but many others are not. Think of all the new payment instruments, especially the retail ones, that don’t rely on banks or stop by briefly only to use the payment and clearing infrastructure. The term shadow banking has the word banking in it because it is supposed to capture where non-banks engage in banking and banking means financial intermediation. To leave the liability side out of the banking equation is to omit about half of it from the global assessment of how much risk is bypassing banks to take up residence in more hospitable climes.

I said at the outset that the FSB work is problematic for two reasons. One is the data – see above. The second and still more troubling is the platitudinous nature of the monitoring report’s conclusions. Consistent with much global work, the FSB’s report definitively states that:

Intermediating credit through non-bank channels can have important advantages and contributes to the financial of the real economy, but such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions (e.g. maturity and liquidity transformation, and leverage) and when their interconnectedness with the regular banking system is strong.

The sages have spoken – I just have no clue what they said.