The shadow banking industry has grown to about $67 trillion worldwide, $6 trillion bigger than previously thought, leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight, Bloomberg said.
The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off-balance-sheet investment vehicles, "can create systemic risks" and "amplify market reactions when market liquidity is scarce," the Financial Stability Board said in a report, which utilized more data than last year's probe into the sector.
"Appropriate monitoring and regulatory frameworks for the shadow banking system needs to be in place to mitigate the build-up of risks," the FSB said in the report published on its website.
Though watchdogs have reined in excessive risk-taking by banks in the wake of the collapse of Lehman Bros. Holdings Inc. in 2008, they are concerned that lenders might use shadow banking to evade the clampdown. Michel Barnier, the European Union's financial services chief, is planning to target money market funds in a first wave of rules for shadow banks next year. Read more.