Fed’s Fischer Floats Shadow Bank Regulation Framework

A top U.S. Federal Reserve official on Monday suggested stress tests and certain capital requirements to contain the risks within the non-bank lending sector, while acknowledging there is little the central bank can do to impose such restrictions.  Fed Vice Chairman Stanley Fischer offered a framework to more tightly regulate the lending activities of hedge funds, mutual funds and other non-bank entities – often referred to as shadow banks – though he was careful to show that he was offering suggestions and not potential central bank rules.

Fischer also gave a nod to the Bank of England, which formed a nimble and powerful financial stability arm, and suggested the Fed is headed in a similar direction.  “To promote solvency, one could impose ratio-type capital requirements, such as leverage-ratio requirements or risk-based requirements,” Fischer said, referring to non-bank lenders.

Fischer, in remarks at an Atlanta Federal Reserve Bank event, added that shadow banks should also consider conducting a stress test on themselves.  The Fed has ramped up its focus on crisis-prevention, recognizing the regulatory failures that led to the 2007-09 financial industry collapse.

Reuters

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.