The chair of one of the world's leading financial regulators warned that "shadow banks" pose a risk to global finance.

 

Pablo Hernández de Cos. Ting Shen/Bloomberg via FT. The chair of one of the world's leading financial regulators warned that "shadow banks" pose a risk to global finance.   Pablo Hernández de Cos, the head of the Basel Committee on Banking Supervision, said on Friday that "additional measures" may be needed to curtail the global risks posed by nonbanking financial institutions (NFBIs).  Hernández, who is also the head of Spain's central bank, said the risks posed by shadow banking were demonstrated by “the market turmoil in March 2020." He warned that future instability may stem from rising interest rates, which make it more difficult for borrowers to service their debts. Hernández said that "global work," needed to be done to regulate mortgage lenders in addition to more policy measures to rein in NBFIs. He said that his statements only reflected his own views and not those of the organizations he represents. "Shadow banking" refers to networks of credit-generating financial actors who are free from the oversight that regulates formal banking institutions. Hedge funds, mortgage lenders, investment banks, and private equity funds are key players in the shadow banking system, which became a $52T industry in 2019.