Multinational regulatory body the Financial Stability Board (FSB) has set out proposals to strengthen rules on short-term lending, affecting both banks and non-banks, as it moves to curb risks in shadow banking.
The FSB, which coordinates regulation for the G20 and is headed by Bank of England governor Mark Carney, is concerned that increased regulation of the traditional banking sector is pushing some of the riskier activities out of that sector and into alternatives made up of hedge funds, insurance companies and other non-banks.
Shadow banking is estimated to be worth $3.9 trillion globally.
The FSB noted that "experience from the crisis demonstrates the capacity for some non-bank entities and transactions to operate on a large scale in ways that create bank-like risks to financial stability".
As a result, the FSB has published a framework that imposes minimum requirements on the collateral needed when these kinds of firms borrow money from banks through short-term loans secured by stocks or bonds.
"The regulatory framework for haircuts on securities financing transactions issued by the FSB today addresses important sources of leverage and the level of risk-taking in the core funding markets," said FSB chairman Carney.
Daniel Tarullo, chairman of the FSB's standing committee on supervisory and regulatory co-operation, added: "Securities financing transactions such as repos are important funding tools for a wide range of market participants, including non-bank financial firms.
"The implementation of the numerical haircut floors on securities financing transactions will reduce the build-up of excessive leverage and liquidity risk by non-banks during peaks in the credit and economic cycle. It will be important for the FSB to monitor the impact of the framework following the implementation to help ensure that it achieves these objectives."
It has also opened a consultation on whether these standards should be applied to deals struck between non-banks, widening its remit beyond bank to non-bank deals. Responses should be submitted by December 15.