WASHINGTON (Reuters) - The Federal Reserve is developing regulations that would set minimum margins for securities financing transactions as it looks to contain risk and increase understanding of nonbank financial institutions, its vice chairman, Stanley Fischer, said on Thursday.
“The more stringent regulation of the banking sector may push short-term financing activities to less regulated entities,” he said at a financial stability conference.
The new rules, intended to “limit such regulatory arbitrage,” would “apply to all market participants, thereby mitigating the risks associated with regulation along institutional lines,” he added.
The comments come as regulators turn their gaze to “shadow banking,” and Fischer said both policymakers and researchers “need better models and data to understand the interconnections between the banking system and nonbank financial institutions.”
In particular, he called data on securities lending, bilateral repos, derivatives trading and other activities that could create funding and leverage risks “inadequate.”
Fischer said that better regulations may modestly affect market liquidity but they would reduce leverage and “leave the financial system much more resilient.”
Fischer said he sees overall financial vulnerabilities as moderate and considerably lower than a decade ago.
Asset valuations and debt burdens “do not appear outsized” and house prices “do not appear broadly elevated relative to rents or disposable income,” he said.
But there are signs of valuation pressures in commercial real estate markets and corporate debt is vulnerable to adverse shocks given the high issuance in recent years, he added.
The remarks did not mention interest rates or inflation.
Reporting by Lisa Lambert; Editing by Andrea Ricci
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