Containing hedge fund and NBFI risk
Issues
Non-bank financial institutions (NBFI) merit much closer attention because of their impact on the global financial system and LICs. Hedge funds have been a destabilising influence, and their increasing importance along with other non-banks (the “Shadow Banking System”) and complexity and mutability of operations across borders means that they carry a greater threat to financial stability. Non-bank financial institutions (NBFI) are not covered by Basel III. This, in addition to the fact that a lot of transactions in LICs take place outside the banking system, means that this issue merits attention.
The FSB finds the Shadow Banking System to be inherently complex, and is presently seeking to define it. G20 has asked it to develop recommendations to strengthen regulation and oversight by mid-2011. FSB is addressing this first by looking at all nonbank credit intermediation, and then more narrowly at activities where maturity / liquidity transformation and / or flawed credit risk transfer and / or leverage create important risks.
Progress and next steps (as of April 2011)
- FSB organised a workshop hosted by the UK FSA on 6 December 2010 to exchange views, and formed a task force to defined SBS, recommend monitoring approaches and regulatory measures
- FSB published a background note in April seeking public comments
- FSB will consider initial draft recommendations at its July Plenary meeting and further develop the recommendations to be submitted to the G20 in the autumn
Key contact
- FSB Secretariat (the Taskforce charged with preparing the initial report below is not identified)
References