The Bank for International Settlements (BIS),
a forum for the world’s central banks, wants specific regulations that were
introduced after the 2008 financial crisis to also be extended to shadow banks
and FinTech firms.
According to Reuters, the regulation in
question is “macroprudential” policy, which requires banks to build up separate
“countercyclical” buffers of capital that can be released if loans begin
going bad and maintain the financial system’s resilience to shocks.
But in its annual report, the BIS warned that the tools in place
might not be enough to handle the risks associated with other financiers, such
as asset management funds (also known as shadow banks), because they also offer
credit.
In fact, that business has grown significantly since the
financial crisis, with shadow banking from open-ended bond funds, hedge
funds, money market funds and other types of funds rising 7.6 percent to $45.2
trillion in 2016.
“As current macroprudential measures focus mainly on banks,
they may be less effective in dealing with risks arising from the market-based
financing that has become more prevalent post-GFC,” the report stated.
“Similarly, financial innovation and the application of new technology to the
financial industry may shift the nature of risk, requiring a new set of policy
responses and an expanded arsenal of instruments.”
Some regulators have already taken steps to address this in
their own countries. For example, the U.S. Securities and Exchange Commission
(SEC) last year implemented new rules requiring open-end mutual funds and
exchange-traded funds to establish liquidity risk management programs. The Bank
of Mexico and France’s markets regulators have also followed suit.
“The growing importance of asset managers and other
institutional investors in both domestic and cross-border financial
intermediation requires national authorities to monitor potential systemic
risks from these activities at both the national and global levels, and to
consider how best to employ macroprudential approaches to deal with such
risks,” the BIS said.
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