FSB Recommendations to Strengthen Oversight and Regulation of Shadow Banking
The "shadow banking system" can broadly be described as "credit intermediation involving entities and activities outside the regular banking system". Intermediating credit through non-bank channels can have advantages. For example, the shadow banking system may provide market participants and corporations with an alternative source of funding and liquidity. It may also provide efficient credit in the economy as some non-bank entities may have specialised expertise that enables them to provide certain functions in the credit intermediation chain more cost-efficiently. However, as the financial crisis has shown, the shadow banking system can also become a source of systemic risk, both directly and through its interconnectedness with the regular banking system. This report first outlines the overall approach being taken to strengthen the oversight and regulation of the shadow banking system and then sets out recommendations for intensifying monitoring and enhancing regulation.