G 20 on Shadow Banking

The recent G20 meeting ended with a strong affirmation of regulatory functions on the top banks. The control on NBFC s has great importance since the bankruptcy of Lehman Brothers was the first indication of global economic crisis of 2008. The G20 leaders have given lots of attention on the issue of shadow banking and they have taken a decision to strengthen the regulation over the shadow banks.

In the roadmap document to regulate shadow banks, International Organization of Security commission (IOSCO) will analyze the global hedge fund sector to the Financial Stability Board (FSB). FSB, the international body to monitor and recommend about the global financial system was established soon after G20 summit in 2009. Based in Basel, Switzerland the board members are G20 nations, FSF members and the European commission. FSB provides regular monitoring of shadow banking services. There are various procedures assigned to FSB and IOSCO, to keep the services of NBFC is on track.

In the G20 preamble the 62nd point is all about shadow banking regulation and in that it says that the G20 group is implementing a wide range of policies to correct the global economic crisis by ensuring the financial institutions, markets and the participants are working in a regulated environment.

The shadow banking sector is around $60 trillion among that $30 trillion is in the Europe itself. This year witnessed a huge credit bubble in China because of the shadow banking. Chinese overall credit grew from $9 trillion to $23 trillion in the five years since 2008, the Lehman collapsed. The shadow banking in the US shows the signs of shrinking since 2010 for eg: the size of repurchase agreements is down by 3% to $1. 60 trillion.