WASHINGTON — The international coordinating body for financial regulation announced Thursday that it has approved an initial set of recommendations for various countries to use to strengthen the oversight of their shadow banking systems.
The recommendations by the Financial Stability Board call on each country's regulators to assess the scale of, and trends involving, credit intermediation by non-banks. It said each country's regulators should focus on cases where such activity has the potential to pose systemic risks.
The degree of interconnectedness between a country's banking system and its shadow banking system is one factor that the regulators are urged to consider when they are assessing systemic risk.
The Financial Stability Board also identified five areas where its shadow banking task force determined that more detailed work is needed in order to gauge whether further regulatory action is necessary.
Those five areas are: the regulation of banks' interactions with shadow banking entities; the regulation of money market funds; the regulation of other shadow banking entities; the regulation of securitization; and the regulation of activities related to securities lending and repurchase agreements. Recommendations to the Financial Stability Board in each of the five areas are expected during 2012.
The Financial Stability Board also said that it will elaborate on its recommendations for shadow banking regulation in an October 2011 report to the G-20.
The group's task force on shadow banking is co-chaired by Adair Turner, who is chairman of the Financial Services Authority in Britain, and Jaime Caruana, who is general manager of the Bank of International Settlements and a former governor of the Bank of Spain.
