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Global regulators make tackling non-bank leverage a priority for 2024

Published 12/20/2023, 08:06 AM
Updated 12/20/2023, 04:12 PM
© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009.  REUTERS/Rick Wilking/File Photo

By Huw Jones

LONDON (Reuters) - Tackling hidden leverage across the multi-trillion dollar "shadow banking" sector is next year's priority, global financial regulators said on Wednesday, but the challenge of accessing data could hamper the process.

The G20's Financial Stability Board (FSB) and IOSCO, a global grouping of securities markets regulators, on Wednesday issued tougher liquidity management guidance for asset managers of open-ended investment funds, adding to existing guidance for money market funds, which FSB and IOSCO members commit to applying.

Both types of funds are part of the $218 trillion non-bank financial intermediation (NBFI) sector, which also includes hedge funds, property funds and insurance companies. This now makes up almost half of all global financial assets, and is also dubbed "shadow banking" given its role in the economy.

FSB Secretary General John Schindler said further regulatory scrutiny of non-banks will be a priority for 2024, with a focus on leverage.

"That will probably be the big attention grabber because leverage within NBFI is harder to track, it's harder for us in the central banking community to monitor," Schindler told Reuters.

"Leverage can go in all directions. The challenge, let us be clear, is about data," IOSCO Chair Jean-Paul Servais added. "It (data) will be the challenge before thinking about possible policy initiatives."

Much of the data required falls is outside the remit of securities watchdogs, but Servais said he was confident that, by working with central banks through the FSB, the data challenge can be addressed.

Schindler said regulators were aiming to set out policy proposals on tacking leverage by the end of 2024 or early 2025.

Cooperation between the FSB and IOSCO over regulating non-banks hit the buffers in the past over whether non-banks should be treated like banks and be required to hold capital buffers.

Wednesday marked the first time the FSB and IOSCO jointly put out recommendations on NBFI.

© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009.  REUTERS/Rick Wilking/File Photo

"It means that we need each other," Servais said.

"We are marching step by step with each other," added Schindler.

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