FSB published a report assessing the evolution of shadow banking activities and risks since the global financial crisis. This report, which responds to a request from the G20, also examines the adequacy of post-crisis policies and monitoring to address the shadow banking risks.
The report focuses on the policies introduced since the financial crisis, to address financial stability risks from shadow banking. The assessment reveals that the aspects of shadow banking considered to have contributed to the global financial crisis have declined significantly and generally no longer pose financial stability risks. However, a rise in assets held in certain investment funds has increased the risks from liquidity transformation. These developments underscore the importance of effective operationalization and implementation of the FSB’s January 2017 policy recommendations to address structural vulnerabilities from asset management activities. To this end, IOSCO plans to publish consultative documents on liquidity risk management of open-ended funds in July 2017 and will finalize them by the end of 2017. IOSCO is also slated to identify and/or develop consistent leverage measures by the end of 2018.
The report also reveals that FSB has not identified other new financial stability risks from shadow banking that would warrant additional regulatory action at the global level. However, since shadow banking evolves over time, authorities should continue to monitor vigilantly and address promptly emerging financial stability risks. To this end, the FSB member authorities have agreed on the following recommendations:
Enhance system-wide oversight of shadow banking and policy responses to address the identified risks by implementing recommendations of the 2015–16 Peer Review.
Strengthen the monitoring of shadow banking activities and data collection. The FSB will assess the data availability and make improvements to its annual monitoring exercise as appropriate in 2018.
Complete the remaining policy development at the international level and implement the agreed policy recommendations to reduce risks and arbitrage opportunities across jurisdictions and sectors.
Keywords: International, FSB, Shadow Banking, Financial Stability, Banking, Market Based Finance
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