FSB plans information sharing mechanism to curb shadow banking

To curb risks posed by shadow banking activities, the Financial Stability Board (FSB) plans to establish an information sharing system among various countries, including India.

 

The risks from shadow banking, estimated to be worth trillions of dollars, gains attention especially since the global system is gearing up for stricter and stronger banking regulations.

 

FSB, which works to ensure global financial stability, represents entities from 24 nations and jurisdictions, including India and international financial institutions, among others.

 

"In order to maintain consistency across jurisdictions in applying the policy framework and to detect new adaptations and innovations in financial markets, authorities will set up an information-sharing process under the FSB," it said in a report released late Thursday.

 

In this regard, a detailed procedure is expected to be worked out by March 2014.

 

Generally, shadow banking is described as credit intermediation involving entities and activities that are outside the regular banking system.

 

Since the 2008 global crisis, there have been concerns about the shadow banking activities posing risks to the financial system.

 

FSB has published final policy documents on Strengthening Oversight and Regulation of Shadow Banking.

 

The policy framework would help authorities to better identify and address financial stability risks from shadow banking activities.

 

"This is especially important as tighter regulations on banks and other traditional market participants that are coming into effect may incentivise some risky activities to move to less tightly regulated sectors," said Daniel Tarullo, chairman of FSB Standing Committee on Supervisory and Regulatory Co-operation.

 

According to FSB, authorities should also have the ability to collect relevant data and information.

 

"Improvement in transparency through enhanced data reporting and public disclosures is crucial for assessing the risks posed by shadow banking and in changing or reducing the incentives of market participants to arbitrage regulation at the boundaries of bank regulation," it added.