Economics
Shadow Bank Weaknesses Forced Fed’s Market Rescue, Quarles Says
- Nonbank perils triggered virus intervention in March, he says
- FSB is examining nonbank financial firms, Quarles says
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A top Federal Reserve official is issuing a warning about fast-growing and largely unregulated shadow lenders: They were a big factor in why central banks had to save markets earlier this year, and much more needs to be done to assess the risks posed by the sector.
The coronavirus crisis has exposed potential weaknesses tied to nonbank financial firms, including excessive leverage, interconnectedness and instances of assets freezing up that investors assumed were akin to cash, according to Federal Reserve Vice Chairman Randal Quarles. Such factors left central banks with no option other than intervening, he said, speaking in his capacity as chairman of the global Financial Stability Board.