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Shadow banking may be good for the economy - FSB

Wednesday, December 12, 2012

Bailey McCann, Opalesque New York: The Financial Stability Board has released 19 new documents on shadow banking, taken together these documents provide an outline of how the regulator is likely to view shadow banking going forward. According to a client alert from UK law firm, Clifford Chance, "the emerging clarity around regulatory policy is welcomed, as is the recognition by the FSB that shadow banking provides a real benefit to the economy: the FSB recommendations specifically acknowledge that, under certain conditions, non-bank credit intermediation can increase the resilience of the financial system."

The FSB has been working to craft guidance around five separate workstreams which define the shadow banking sector. These include: mitigating the spill-over effect between the regular banking system and the shadow banking system; reducing the susceptibility of money market funds to runs; assessing the systemic risk posed by the shadow banking sector; aligning the incentives associated with securitization, and dampening the risks associated with secured financing contracts. The new documents detail specifically how the FSB plans to regulate these workstreams and offers some specific guidance around what constitutes other shadow banking entities as we......................

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