Pulling “Shadow Banking” Out Of The Shadows: FSB Report On March 2020 Turmoil Signals Increased Regulatory Scrutiny Of Non-Bank Financial Intermediation

Mayer Brown | Paul Forrester | Nov 18, 2020

FSB holistic report on march turmoil - Pulling "Shadow Banking" Out Of The Shadows: FSB Report On March 2020 Turmoil Signals Increased Regulatory Scrutiny Of Non-Bank Financial IntermediationIn its recent report “Holistic Review of the March Market Turmoil” (Report), the Financial Stability Board (FSB) notes that “[t]he March [2020] turmoil has reinforced the need to better understand interconnections and amplification channels in the financial system and to consider the nature of vulnerabilities in non-bank financial intermediation (NBFI) in relation to the liquidity stress and the implications of central bank liquidity support, and draw lessons about overall resilience of the NBFI sector.”1 The Report also notes the need “for further work to increase the resilience of NBFI.”2

The Report also notes that “non-bank financial entities – comprising investment funds, insurance companies, pension funds and other financial intermediaries – have different structures and are subject to distinct regulatory frameworks within and across jurisdictions. Their asset share has increased to almost half of global financial assets, compared to 42% in 2008, due to both inflows and valuation increases. One factor behind this increase has been the growth of investment funds, whose assets have expanded from roughly US$21 trillion in 2008 to US$53 trillion in 2018.”3

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The Report states that “[t]he FSB will coordinate the international regulatory community’s assessment of identified vulnerabilities and the appropriate financial policy response, working closely with standard setting bodies and member authorities. As part of this review, the FSB published a comprehensive NBFI work programme covering the key issues at a high level.”

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