The Financial Stability Board (FSB) is seeking views on a “background note” on what might be done to address the systemic risk posed by “shadow” banks – that is, unregulated firms conducting credit intermediation similar to that done by regulated banks or offering other services to facilitate credit intermediation outside the regulated-banking system.  The work is based on concerns by the G-20 heads of state and finance ministers that these shadow organizations pose systemic risk, yet are exempt from all the rules being developed by global regulators to govern it.  As a result, systemic risk may not only be unaddressed in key arenas, but incentives could also be created for activities to transfer from regulated to unregulated entities to arbitrage these gaps.  Despite these concerns, the background note proposes few concrete actions.  It does, however, outlines a two-step process and the criteria in it through which regulators would first identify broad systemic risks posed by shadow banks related to credit intermediation and, then, to highlight specific problematic activities.  Of most immediate concern are money-market funds, asset-back commercial paper and certain credit-related insurance products.

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