In the wake of recent stress in commodity and bond markets, the Financial Stability Board (FSB) is proposing reforms that aim to shore up the shadow banking sector.
The global policy group issued a report on Thursday that sets out a series of recommendations for addressing systemic risk in the non-bank financial sector, focusing on liquidity strains and spillover risks.
“The main focus of the policy proposals is to reduce excessive spikes in the demand for liquidity by addressing the vulnerabilities that drive those spikes or by mitigating their financial stability impact,” the FSB said in a release.
Among other things, the proposals aim to address structural liquidity mismatches in investment funds and seek to promote the use of liquidity management tools to cushion the effects of market stresses.
The proposals also aim to enhance the transparency and liquidity of market participants.
Additionally, the FSB said it will consider measures to deal with leverage risks, and work with global securities regulators through the International Organization of Securities Commissions to enhance the resilience of short-term funding markets.
“Work is ongoing in other [shadow banking] areas and additional reports with findings, and policy implications will be published in late 2022 and during 2023,” the FSB said.