Global regulators have introduced new rules for non-banking institutions including hedge funds and private equity firms with an aim to mitigate risk in the shadow banking sector.
According to the new rules, these firms will have to offer a minimum level of collateral, such as stocks or bonds, when borrowing money from banks.
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Banks would now have to impose discount of a minimum of 6% on the securities they receive from non-banks in exchange for a loan, stated the Financial Stability Board (FSB).
Mark Carney, FSB chairman stated that the change addressed the level of risk taking in the core funding markets.
He said: " It has been carefully developed and marks a big step forward in the FSB’s overall work programme to transform shadow banking into resilient market-based financing conducted on a sound basis."
The rules, effective from the end of 2017, have been set up with the target to prevent excessive lending which resulted in the financial meltdown of 2008.
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By GlobalDataThe new rules, though presently applicable only for transactions between banks and non-banks, could also extend to deals between non-banks in the future.
