The Financial Stability Board (FSB) has issued a renewed call for greater regulation of shadow banking, emphasizing the need for enhanced monitoring and oversight of non-bank financial activities. The FSB’s recommendations are designed to address potential risks to the global financial system stemming from shadow banking entities and activities.
Key Areas of Focus
The FSB’s recommendations focus on several key areas:
- Enhanced Monitoring: Strengthening the monitoring of shadow banking activities to identify emerging risks and vulnerabilities.
- Regulatory Framework: Developing a comprehensive regulatory framework for shadow banking entities, including capital requirements and liquidity standards.
- International Cooperation: Promoting international cooperation and information sharing to address cross-border shadow banking activities.
- Addressing Systemic Risk: Implementing measures to mitigate systemic risk arising from shadow banking, such as interconnectedness with the traditional banking sector.
Rationale for Increased Regulation
The FSB argues that increased regulation of shadow banking is essential to:
- Reduce the risk of financial instability.
- Prevent regulatory arbitrage.
- Promote a level playing field between banks and non-bank financial institutions.
- Enhance transparency in the financial system.
Next Steps
The FSB is working with national authorities and international organizations to implement its recommendations. The board will continue to monitor the evolution of shadow banking and adjust its regulatory approach as needed.
Specific Recommendations
The FSB’s specific recommendations include:
- Strengthening oversight of money market funds.
- Addressing risks associated with securities lending and repurchase agreements.
- Improving the regulation of other non-bank financial intermediaries.
