Strengthening Oversight and Regulation of Shadow Banking
Comment on Consultative Documents of the Financial Stability Board (FSB) by Suleika Reiners, Policy Officer Future Finance
1 Overarching remarks
The Financial Stability Board (FSB) mentions key issues of shadow banking such as excessive maturity liquidity transformation, immense leverage, procyclicality, highly complex and deeply intertwined credit intermediation chains as well as regulatory arbitrage. The FSB also provides a complex framework of meaningful measures. In order to make these measures effectively implementable, the following points are of relevance for all three consultative documents.
1.1 Appropriate policies: more courage instead of less
The FSB intends to design an approach which is proportionate to financial stability risks. However, quantitative specifications of the proposals are still missing. Even in the regular sector, standards are often far too low. A recent example is the renewed weakening of Basel III rules in terms of liquidity standards (Master). In order to be effective, the proposed measures must be substantial enough. Hence taking care in weighing the pros and cons of a policy means in particular not to overestimate any alleged cons, not to underestimate the pros, and especially not to underestimate the opportunity costs of remaining too weak.
That applies, for example, to the:
- size and composition of capital and liquidity buffers (to be suitable for every-day fluctuations as well as against stress scenarios of runs)
- limits on leverage
- weighted average remaining maturity for assets and liabilities (to avoid maturity mismatch between assets and liabilities)
- standards to calculate collateral haircuts
- collateral reinvestment guidelines.