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An outlook of the shadow banking industry
By Jennifer Liu and Brian Lum
Shying away from the spotlight briefly, shadow banking has come back to the top of regulators’ agenda. At the World Economic Forum in Davos, Switzerland this year, Mark Carney, chair of the Financial Stability Board (FSB), reminded the audience that central bankers will finally address this “forgotten bit of reform” as they try to complete an overhaul of financial regulation over the next two years.
In fact, the FSB has teamed up with other organizations such as the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS) to work on a shadow banking reform framework. It focused on the following five specific areas in which it believed policies are needed to mitigate the potential systemic risks associated with shadow banking:
Focusing its work effort, FSB has enhanced the monitoring of the shadow banking system. For example, FSB conducted its second annual monitoring exercise in 2012. The broadened coverage included 25 jurisdictions, compared with 11 from the year before. FSB also developed policy recommendations[1] to strengthen the regulations of the shadow banking system.
FSB has issued the recommendations for public consultation and is targeting to issue the final version in September 2013.
It is not hard to tell that some of the recommendations resonate with the tone of overall financial regulatory reforms that are taking place. Improving market transparency, introducing prudent practices, leveraging capital treatment as incentives and encouraging central clearing are some of the themes already observed in the Dodd-Frank and Basel III initiatives.
What does this mean for shadow banking entities and how can they succeed in this new world post-crisis? Such firms can take several steps to help ease the way for upcoming regulatory reforms:
How do you think regulatory reforms will affect the shadow banking sector? Join the discussion.
[1] Summary of Shadow Banking Policy Recommendations – Financial Stability Board, Strengthening Oversight and Regulation of Shadow Banking: http://www.financialstabilityboard.org/publications/c_130129xx.pdf
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
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