How long before $250 trillion of hidden risk explodes in the financial system?
World ‘blind’ to risks in booming $250tn shadow bank market
The world’s top financial regulators have admitted they are blind to dangers lurking in the shadow banking sector.
On Tuesday, the Financial Stability Board (FSB), a network of global watchdogs, said “severe limitations” on the availability of data from the $250tn (£190tn) industry made it more difficult to spot the seeds of another global financial crash.
The FSB, chaired by Andrew Bailey, the Governor of the Bank of England, said there was not enough data for private capital funds for regulators to assess the risks – even when banks are involved in the trades.
“Significant cross-border data blind spots persist, as exposures of domestic banks to foreign hedge funds, private credit funds, or offshore affiliates are frequently excluded from local reporting frameworks or available only in aggregated form,” the watchdog said.
It raises the prospect that significant dangers could be growing unobserved in the core of the financial system.