In this report, we update clients on pending efforts to govern residential-mortgage REITs due to fears about their potential systemic impact. Global regulators determined that REITs in general are now the fastest growing “shadow” sector, although a new study from the Federal Reserve Bank of Richmond casts doubt about the systemic impact of these formidable competitors. This may help to defer REIT-specific regulation in the U.S., but the FSB’s findings will increase the determination of U.S. regulators to constrain the securities financing on which REITs rely.

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