Regulators have been talking about increasing their scrutiny of shadow banking for at least a decade. Now, as higher interest rates spark volatility in bonds, real estate and other asset classes, there is a renewed regulatory push to address systemic vulnerabilities in the non-bank financial sector, important parts of which remain almost entirely unregulated.
The collapse of Silicon Valley Bank this year graphically demonstrated the dangers of inadequate bank regulation, especially in the US. And as banks worldwide prepare for the finalization of Basel III – often called the Basel endgame or Basel IV – there is concern that even more risk will flow into the non-bank sector. This includes hedge funds, private equity and family offices, as well as tighter-regulated businesses such as money market funds, insurance companies and pension funds. Private credit, for example, has grown rapidly.
