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Shadow-Bank Ties to Lenders in Crosshairs of Basel Supervisors

  • Bank oversight committee wants to limit risk from non-banks
  • Industry asked to weigh in by March on proposed policies

Global regulators need to do more to protect banks from being dragged down by money-market mutual funds, asset managers and mortgage finance companies, according to the Basel Committee on Bank Supervision.

So-called shadow banks may pose a risk to regulated lenders even in the absence of a legal obligation because of business ties that encourage lenders to absorb losses on to their own balance sheets. This “step-in” risk could then spill over and trigger another crisis, the Basel committee said on Thursday.