Thinking About 'Shadow Banking'

The discussion around the role of nonbanks and their impact on financial stability is a healthy development. However, the author believes the current debate is filled with a number of misconceptions and omissions that detract from the goals of enhancing market stability and economic growth called for in the Dodd Frank Act. Moreover, the lack of a consistent market framework that is publicly articulated by regulators limits the ability of investors and consumers to better understand the risks in nonbank business models. Regulators in the U.S. and other nations have been focused on the growth of nonbanks as an area of future risk. Regulators and investors need to be more careful in parsing the risks posed by different categories of nonbank entities. Investors, regulators and policy makers need to be more aware of the different types of business models in the nonbank universe and the types of risks they pose, and fashion public policy accordingly