Shining Light on Shadow Banking: Better Reporting Key to Preventing Financial Turmoil
Shadow banking has changed banking by focusing more on market activities like trading securitized products. The recent financial crisis showed that shadow banking is risky due to its lack of transparency. To prevent future financial turmoil, better reporting of bank risk is needed instead of re-regulation. Market-oriented operations should be more transparent, and detailed reports on noninterest income activities should be required. Improved indicators of leverage are necessary to understand and manage bank risk better.