FSB has published a suite of papers containing policy recommendations to strengthen the oversight and regulation of the shadow banking system. The proposals aim to:

  • mitigate the spill-over effect between the regular and shadow banking systems;
  • reduce the susceptibility of money market funds (MMFs) to runs;
  • assess and align incentives associated with securitisation;
  • dampen risks and procyclical incentives associated with securities financing transactions such as repos and securities lending that may worsen funding strains when markets are stressed; and
  • assess and mitigate systemic risks that other shadow banking activities and entities pose.

FSB has published three documents addressing these aims:

  • an Overview of Policy Recommendations: this sets out FSB’s overall approach to shadow banking issues;
  • a Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos: FSB suggests recommendations for addressing financial stability risks in this area. These include more transparency, regulation of securities financing, and improvements to market structure. The paper also consults on minimum standards for methodologies to calculate haircuts on non-centrally cleared securities financing transactions and a framework of numerical haircut floors; and
  • a Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities setting out the high-level policy framework to assess and address risks posed by shadow banking entities that are not money market funds.

FSB asks for comments on its paper on securities lending and repos by 28 November. (Source: FSB Reports on Shadow Banking)