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FSB cracks down on shadow banking

The Financial Stability Board recently announced that it will focus on money-market funds, securitizations and securities lending and repos to investigate how banks are linked to the so-called shadow banking system.

The FSB was established to coordinate, on an international level, the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability.

Regulators are worried that banks will outsource to shadow banks in order to escape new financial regulations.

The FSB listed five areas of operations which require additional attention. The areas include the way that banks consolidate affiliated shadow-banking businesses and the measurement of banks' exposures to such entities.

Concerns regarding the regulation of money market funds as well as the regulation of securitizations were also highlighted by the FSB, especially in the circumstance where banks should be required to keep a part of the loans they securitize on their own balance sheet.

The FSB also described the need for further work on the regulation of securities lending and repo transactions.

Workstreams have been developed to focus on each of these issues.

"The workstreams will develop preliminary work plans shortly and report their progress as well as the proposed policy recommendations to the FSB by July 2012, or end 2012 for securities lending/repos," the FSB said, according to Reuters.com.

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