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London - Leaders of the world's top economies (G20) meet on September 5-6 to endorse the final piece of their financial crisis regulatory reforms: rules for the $60 trillion "shadow banking" sector.
The aim is to plug supervisory gaps, as much of the sector is far less regulated than mainstream banking.
The main reforms expected to be endorsed:
- New supervisory framework: G20 unlikely to push for list of named shadow banks subject to tighter mandatory capital requirements, like for top banks and insurers. Instead set to back a supervisory framework with a set of optional tools to rein in excessive leverage;
- Securities lending and repurchase markets: G20 expected to back proposal for new mandatory minimum "haircut" on collateral for backing securities lending and repos, a step the industry opposes. Also backing for requiring transactions to be reported to a trade repository to give regulators a snapshot of the wider market.
Reforms underway or still being formulated:
- Money market funds: The United States has already proposed tighter rules to avoid repeat of "runs" seen in the financial crisis. The European Union will propose a draft law on September 4 that already faces heavy industry opposition.
- Securitisation: EU and United States already require banks that originate securitised debt to retain a portion as an incentive to maintain high underwriting standards.
- Bank exposures to shadow bank entities: No final rules expected from meeting, but banks face setting aside more capital; review of curbs on how much a bank can be exposed to a shadow bank; possible widening of what assets should be included in calculating group-level capital to take into account risks from shadow banking.
