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Shadow banking – FSB issues consultation on oversight and regulation of shadow banking

18 November 2012

To read the FSB report, click on this link.

The FSB focused on five specific areas in which it believes policies are needed to mitigate the potential systemic risks associated with shadow banking: (i) mitigating the spill-over effect between the regular banking system and the shadow banking system; (ii) reducing the susceptibility of money market funds (MMFs) to “runs”; (iii) assessing and mitigating systemic risks posed by other shadow banking entities; (iv) assessing and aligning the incentives associated with securitisation; and (v) dampening risks and pro-cyclical incentives associated with secured financing contracts such as repos, and securities lending that may exacerbate funding strains in times of “runs”.

More specifically on repos and securities lending, explicit proposals are formulated on minimum haircut setting methodology, numerical floors on haircuts, collateral valuation and management, cash collateral reinvestment and requirements on re-hypothecation.

The consultation runs until 14 January 2013.