Global Regulators Claim Partial Victory in Tidying the Financial System

By Jason Douglas Features Dow Jones Newswires

Global financial regulators on Monday declared a partial victory in cleaning up some of the murkier corners of the financial system.

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In a report prepared for world leaders meeting in Hamburg, Germany, later this week, regulators on the Financial Stability Board said that many of the "shadow banking" activities that contributed to the financial crash that pushed the world economy into recession almost a decade ago no longer pose a risk to financial stability.

They cited reforms that have made money-market funds safer, efforts to stop banks using special structures to hide souring assets off their balance sheet, and a decline in the use of complex products that package assets for investors.

"The toxic forms of shadow banking at the heart of the crisis no longer represent a global financial stability risk," said Mark Carney, governor of the Bank of England. Mr. Carney is chairman of the FSB, the regulatory task force of the Group of 20 advanced and developing economies.

The panel added, though, that shadow banking is continually evolving, and regulators will need to be alert for any new risks that emerge.

The FSB said in its report for the G-20 that ongoing efforts to make the financial system safer are proceeding well but pockets of unfinished business remain.

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The board flagged patchy implementation of tougher rules on bank capital and liquidity world-wide, as well as still-be-be-completed reforms to ensure that big, globally significant banks with operations in multiple countries can fail safely if they get into trouble.

Speaking to reporters in London, Mr. Carney called on G-20 leaders to embrace a "strategic opportunity" to forge an open and global financial system.

The election of President Donald Trump in the U.S. in November and Britain's decision to exit from the European Union have fueled concerns that some advanced economies are turning away from globalization, finance included. The FSB said a global financial system is critical to ensure that funds can flow across borders in search of investment opportunities that drive growth.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

July 03, 2017 08:43 ET (12:43 GMT)