Shadow banking hits $67 trillion globally: task force

Mon Nov 19, 2012 1:56pm EST
 

By John O'Donnell and Douwe Miedema

BRUSSELS/WASHINGTON (Reuters) - The shadow banking system - blamed for aggravating the financial crisis - grew to a new high of $67 trillion globally last year, a top regulatory group said, calling for tighter control of the sector.

A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policymakers that the so-called shadow banking system of non-bank intermediaries continues to harbour risks to the financial system.

The FSB, a task force from the world's top 20 economies, also called for greater control of shadow banking, a corner of the financial universe made up of entities such as money market funds that has so far escaped the web of rules that is tightening around traditional banks.

"The FSB is of the view that the authorities' approach to shadow banking has to be a targeted one," the group wrote in a report, noting the current lax regulation of the sector.

"The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial stability," it said.

Officials at the European Commission in Brussels also see closer oversight of the sector as important in preventing a repeat of the financial crisis that has toppled banks over the past five years and rocked the euro zone.

The European Commission is expected to propose EU-wide rules for shadow banking next year.

The United States is already rolling out a framework of new rules for the $2.5 trillion money market industry, which pools money from investors to put in low-risk financial assets that resemble deposits in a bank.   Continued...

 
The sun lights the exterior of the New York Stock Exchange, as people walk past on the shadowed street, July 16, 2008. REUTERS/Chip East