Regulators tackle shadow banking in Asia

MANILA, Philippines - Monetary and fiscal policymakers in the region are looking at measures to better monitor shadow banking in Asia, according to a statement by the Financial Stability Board (FSB).

Shadow banking in the region was discussed following the fifth meeting of the FSB Regional Consultative Group for Asia, which is co-chaired by Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. and Masamichi Kono, the vice commissioner for international affairs at the Financial Services Agency of Japan.

“Members considered the FSB’s high level policy framework for strengthened oversight of shadow banking relevant for the region,” FSB said.

Shadow banking refers to the non-bank financial institutions that are not supervised by regulators. They perform activities much like commercial banks such as extending credit.

The increasing reach of shadow banks has been a concern for some policymakers as they do not disclose the value of their assets with the little or none at all regulatory oversight such as that of traditional banks. Moreover, these shadow banks do not have access to formal liquidity support.

“Shadow banking acitivities differ across countries and hence the need for proportionality in the regulatory response, taking into account national circumstances and regulations in place,” FSB pointed out.

Aside from shadow banks, the FSB Regional Consultative Group for Asia threshed out the importance of systemically important financial institutions to the region.

“[M]embers considered the impact on the region of the framework for, and requirement applicable to, systemically important financial institutions,” FSB said.

“Members noted the benefits from greater institutional resilience, strengthened supervision and improved resolvability of globally systemically important banks,” FSB added.

It further said “They also noted the possibility of some deleveraging and discussed policies that could be implemented to mitigate such impacts were they to arise.”

FSB also said Asian policymakers threshed out vulnerabilities and financial stability issued of the region with regard to possible reduction in quantitative easing programs of some central banks.

The FSB was establish to develop and promote effective regulatory, supervisory, and other financial sector policies, according to its website.