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May 8, 2014

Regulators See Growing Financial Risks Outside Traditional Banks

“U.S. regulators have spent the past six years forcing banks out of businesses seen as risky. Now, they are beginning to worry that they have pushed some financial activity into the shadows and outside their legal reach.

“Regulators on the Financial Stability Oversight Council on Wednesday said they are monitoring new practices by nonbank financial firms—including mortgage-servicing companies, insurers and asset managers—over concerns that their activity could pose an emerging threat to the financial system.

“Some of these firms aren’t required to maintain the same capital cushions that banks need to guard against a severe economic downturn, the regulators said.

“The annual report, which was signed by heads of the Treasury Department, Federal Reserve, Securities and Exchange Commission and other agencies, is one of the first recognitions by regulators that post-financial-crisis rules may have shifted risk from the banking sector to less-regulated portions of the system.”

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Read full Wall Street Journal article here

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