IMF Urges Regulators to Focus on Shadow Banks

The International Monetary Fund urged regulators to pay closer attention to a shadow banking system that has grown to more than $70 trillion worldwide to help prevent risks from building outside the bounds of traditional financial oversight.

“Shadow banking tends to take off when strict banking regulations are in place, which leads to circumvention of regulations,” Gaston Gelos, chief of the IMF’s global financial analysis division, said in a statement accompanying portions released today of its Global Financial Stability Report. The full report is scheduled to be released Oct. 8.

Non-traditional lending “also grows when real interest rates and yield spreads are low and investors are searching for higher returns, and when there is a large institutional demand for ‘safe assets’” such as insurance companies and pension funds, he said.

Bloomberg

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