The FSB has published, for consultation, a report entitled “An Integrated Overview of Policy Recommendations”, which sets out the FSB’s overall approach to shadow banking issues and contains an initial integrated set of policy recommendations to strengthen the oversight and regulation of the shadow banking system. 

The analysis and data underpinning the FSB recommendations contained in the consultation report are set out more fully in separate underlying reports, as follows: 

• A report entitled “Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities”, which sets out a high level policy framework to assess and mitigate bank-like systemic risks posed by shadow banking entities (other than money market funds)
• A report entitled “Policy Recommendations to Address Shadow Banking Risks in Securities Lendings and Repos”, which sets out 13 recommendations to enhance transparency, strengthen the regulation of securities financing transactions and approve market structure

These reports relate to two of the five key work streams where the FSB considers policies are needed to mitigate the potential systemic risks associated with shadow banking. The five key areas are as follows:

1. Mitigating against the spill-over effect between the regular banking system and the shadow banking system
2. Reducing the susceptibility of money market funds to runs
3. Assessing and mitigating systemic risks posed by shadow banking entities
4. Assessing and aligning the incentives associated with securitisation
5. Limiting risks associated with secured financing contracts such as repos and securities lending that may exacerbate funding strains in times of runs

The FSB has established separate work streams in each of these areas, some of which are led by relevant international standard setting bodies such as the Basel Committee on Banking Supervision or IOSCO, and some of which are led by the FSB shadow banking taskforce.
 
IOSCO has already published reports containing a final policy recommendation in two of the key areas.  The first report focused on reducing the susceptibility of money market funds to “runs” (IOSCO Policy Recommendations for Money Market Funds, from October 2012) and the second was on assessing and aligning the incentives associated with securitisation (IOSCO Policy Recommendations – Global Developments In Securitisation Markets, from November 2012).

Comments on the three FSB reports should be submitted by 14 January 2013.

For further information, please contact one of the key contacts listed above or your usual contact in our Asset Management and Investment Funds Team.