Abstract

At the 2011 Summit meeting in Cannes, the G20 Leaders agreed to develop policies to deal with the fault lines exposed by the financial crisis in that part of the financial system that extends credit but is outside the regular banking sector: the so-called “shadow banking system”. Those fault lines centred on a heavy reliance on short-term wholesale funding, a variety of incentives problems in securitisation that weakened lending standards, and a general lack of transparency that hid growing amounts of leverage and mismatch between long-term credit extension and short-term funding. The FSB’s strategy to deal with these fault lines has two elements:

  • Create a monitoring framework to track financial sector developments outside the banking system. The FSB has established an annual monitoring exercise to assess the global trends and risks of the shadow banking system, which now includes jurisdictions covering 90% of global financial system assets. The third global shadow banking monitoring report will be published in November 2013.
  • Develop policies to strengthen oversight and regulation of the shadow banking system.