Shadow banks face 2015 deadline to comply with first global rules

Thu Aug 29, 2013 12:04pm EDT
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By Huw Jones

LONDON (Reuters) - The $60 trillion "shadow banking" sector has been given until 2015 to comply fully with its first set of global rules after an international regulatory task force unveiled plans to curb risk without strangling economic recovery.

Leaders of the group of 20 economies (G20) meet in Russia next week to endorse the rules written by their Financial Stability Board (FSB), setting out requirements for the sector and how it must be supervised. Checks on compliance will start in two years' time.

Shadow banking takes in a variety of financial intermediaries and remains a source of systemic risk for taxpayers after the 2007-09 financial crisis revealed "fault lines" that resulted in mainstream lenders needing public bailouts.

The reforms include supervisors collecting detailed data on the different parts of the sector to identify the broader risks.

National regulators must also be equipped with a set of tools to allow measures such as the imposition of capital and liquidity requirements or temporary limits on how much cash clients can pull out to avoid the destabilizing "runs" on money market funds seen during the crisis in the United States.

The rules are designed to curb excessive risk-taking by a sector that does not have access to central bank support or safeguards such as deposit insurance and debt guarantees. However, the FSB has sought to balance its proposals with the need to avoid harming an industry that is vital to financing the economy.

The European Union, meanwhile, publishes its own roadmap next week and has signaled that it may go further than the G20 rules and impose mandatory capital requirements on the sector.

Governments have already forced mainstream banks to hold more capital and FSB Chairman Mark Carney said the latest reform is an essential first step in transforming shadow banking into sound market-based financing.   Continued...

Office workers are reflected on a building as they cast their shadows during lunch time in central Sydney July 30, 2013. REUTERS/Daniel Munoz