Financial Stability Board getting ready to illuminate the dark corners of “shadow banking” system.
It’s time for the shadow banking system to come into the light. That was part of the message the Financial Stability Board (FSB) included in a letter it sent to the G-20. This view was reiterated by the FSB’s chairman, Mario Draghi, in an interview with Bloomberg.
What this means for treasurers is that any savings or efficiencies they enjoyed by utilizing non-bank credit and other services, may now lose those benefits if “shadow banking” companies are regulated like banks.
Back in July we speculated that since most regulations were being written for actual banks, non-bank financial companies – ones that ostensibly have been able to avoid regulations – would now be able to pick off business (see related story here).
But the FSB has gotten wise to this. In its letter to the G-20 the FSB wrote that with the tightening of bank regulatory requirements, “we need to counter a likely resurgence of shadow banking activity.” The letter went on to say that the “need to apply regulatory safeguards to shadow banking will be a key priority of the FSB’s reform agenda going forward.”
For his part, Mr. Draghi drove home that point to Bloomberg. In a discussion on the importance of identifying and regulating systemically important financial institutions, lately known as SIFIs, Mr. Draghi pointed out that these institutions “don’t reside only within the banking sector.” Therefore, over the coming years, the FSB will focus on the growth of institutions at what he called the “regulatory perimeter.”
So now what? In a sense by applying the same rules to all financial institutions, be they in the shadow or in the light, it might actually result in more transparent pricing as now no one has a regulatory advantage, resulting in old-fashioned market forces – who has the best product at the best price?