Supervisors should have powers to demand more collateral on financial transactions in order to cool down overheated markets, Bank of England Deputy Governor Paul Tucker said on Friday.
He and other regulators from across the world are looking at how to rein in the multi-trillion dollar "shadow-banking" sector which handles credit and leverage outside traditional banking....The best way to rein in the "shadow-banking" system is by making it transparent.
This is easily accomplished by requiring ultra transparency.
"The authorities should be able to step in and set minimum haircut or margin levels for the collateralised financing markets, or segments of them," Tucker told a European Commission conference on regulating shadow banks....
The European Commission will propose EU-wide shadow bank regulation next year after a global regulatory body, the Financial Stability Board (FSB), completes work on policy recommendations for world leaders by November when G20 leaders meet.
The FSB, of which Tucker is a member, said in an interim report on securities lending and repos on Friday there was a lack of transparency, potential risks from firesales of collateral assets, and insufficient rigour in collateral valuation and management practices.Adopting ultra transparency addresses all of these issues.