By Emily Stephenson and Douwe Miedema
WASHINGTON, April 25 Regulators should guard
against runs on the shadow banking system and watch out for
cyber attacks on banks in coming months, the top U.S. financial
stability group said on Thursday.
The Financial Stability Oversight Council, which was set up
after the 2007-2009 crisis to watch for developing threats to
the financial system, also urged a reform of market benchmarks
after a global rate-rigging scandal hit the Libor interbank
"Technological failures, natural disasters, and cyberattacks
can emanate from anywhere, at any time," the report said.
"Preparation and planning to address these potential situations
are essential to maintain the strength and resilience of our
The FSOC, a powerful body chaired by Treasury Secretary Jack
Lew, voted on Thursday to adopt its annual report, which
includes a set of recommendations to other regulatory agencies.
The heads of those agencies are members of the council.
Regulators need to keep a close eye on operational risks,
the FSOC said, after a year in which a hurricane disrupted stock
exchanges and cyber attacks hit banks such as JPMorgan Chase
and Wells Fargo.
The council also pointed to technological malfunctions
plaguing the initial public offerings of BATS Global Markets and
Short-term funding markets for banks remain susceptible to
bank runs, singling out money market funds and the so-called
triparty repo market -- jointly often referred to as the shadow
banking market, the group said.
"We need to strengthen markets that may be susceptible to
destabilizing runs and fire sales," Lew said at an open meeting
of the council to consider the report.
The FSOC in the past has used its authority to take on the
issue of a reform of money market funds, urging the Securities
and Exchange Commission to come up with a plan after the
securities watchdog failed last year to agree on new rules.
The council also urged overhauling the housing finance
system in its report and said America should work with foreign
regulators to improve benchmark rates such as Libor, which have
been proven prone to manipulation in recent years.
The group repeated a call to Congress to raise the U.S.
legal borrowing limit, which it said was more of a concern to
markets than the combination of deep spending cuts and tax
increases known as the fiscal cliff that was largely averted
"The inability of the Treasury to borrow might cause an
interruption of principal and interest payments on U.S.
sovereign debt, which financial markets regard as one of the
safest assets," the report said.
The group also warned about potential financial risks from
ultra-low interest rates, with signs of an erosion in corporate
borrowing standards and covenants, and greater issuance of
risky, high-yielding bonds. These conclusions mirrored similar
findings from the International Monetary Fund last week.