Macroprudential measures introduced after the financial crisis should be extended to other financial players, including so-called shadow banks — lending institutions that are not subject to banking regulation — and asset managers, the Bank for International Settlements said June 17.
Existing macroprudential policy requires lenders to have countercyclical capital buffers that can be released during a financial downturn to increase the financial system's resilience to shocks.
"As current macroprudential measures focus mainly on banks, they may be less effective in dealing with risks arising from the market-based financing that has become more prevalent [after the global financial crisis]," the BIS said.
Financial innovation and the application of new technology to the financial industry could also shift the nature of risk and require a new set of policy responses and an expanded arsenal of macroprudential instruments, according to the BIS.
"Current regulation [of] the asset management fund industry is geared mainly [toward] microprudential and consumer protection objectives and thus fails to fully incorporate how actions by one player can affect the health of others via changes in asset prices, exchange rates and market liquidity," the BIS added, noting that the macroprudential perspective should be extended to asset managers to address such concerns.
Close cooperation among various national and global authorities is crucial to effectively deal with systemic risks stemming from asset management funds and other institutional investors such as insurance companies and pension funds, the BIS said.