Quarles: Shadow Banking Vulnerabilities ‘Top of Mind’ Among Regulators

Noting that banks have performed well and been a “source of strength” in the U.S. economy during the coronavirus crisis, “the same cannot be said for important parts of the system of nonbank financial intermediation,” Federal Reserve Vice Chairman for Supervision Randal Quarles said today. He noted that Fed facilities “were needed to contain pressures” in certain prime money market funds and certain funds that invest in corporate debt, and that nonbank mortgage servicers and real estate investment trusts “also struggled during that period.”

With NBFI—commonly known as “shadow banking”—accounting for almost half of financial intermediation, Quarles said that the Basel, Switzerland-based Financial Stability Board is reviewing how shadow banks performed in the crisis and recommend a “macroprudential” approach to supervising nonbank credit.

In related news, the FSB—which Quarles currently chairs—released an update on its recent work for the G20 finance ministers meeting that took place virtually today. Recent FSB work included effective practices for recovering from a cyber incident, a report on the implications of big tech firms for financial services in emerging markets, a plan for developing cross-border payments systems and an assessment of regtech.