Ireland and Luxembourg step up calls for tougher shadow banking rules

Ireland and Luxembourg have intensified calls for tougher global rules on shadow banks in a bid to curb the risk of further financial turmoil erupting from a sector that spans everything from hedge funds to crypto firms.

Senior officials from the two European Union member states, which together host shadow banks with about €10 trillion in assets, want regulators to develop tougher standards for a sector that remains subject to lighter regulation than traditional lenders despite holding about half of all financial system assets.

Vasileios Madouros, deputy governor of financial regulation at the Central Bank of Ireland, told the Financial Times that Dublin would call for the risks posed by an industry that has more than doubled in size since the 2008 global financial crisis to be contained by an “overarching, comprehensive” framework.

Marco Zwick, head of funds regulation at Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier, said: “We have seen that an international crisis cannot be responded to by national initiatives alone; it needs a global response.”

Total shadow bank assets have risen to $240 trillion since 2008, according to research from global watchdog the Financial Stability Board. The push for tougher rules has gained prominence following a string of crises originating from the sector, which is less tightly regulated than the banking industry as firms do not hold retail deposits and were not deemed responsible for the global financial crisis.

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