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Press release
Ahead of the G20-Summit in Brisbane
World Future Council calls for regulation of the shadow banking system
Hamburg, 14/11/2014: The G20 have made the regulation of shadow banking a top priority of their summit in Brisbane, Australia this weekend. At the meeting of the German Council for Sustainable Development in June, German Chancellor Angela Merkel had stressed the urgency of effective shadow banking regulations.
“A large part of shadow bank lending does not bring any real economic benefits but threatens financial stability. Securities, for instance, are being re-pledged multiple times as collateral”, says the financial expert of the World Future Council (WFC), Suleika Reiners. “In Canada, this practice is already prohibited. The other G20 member states should follow this example.”
The WFC criticizes the recommendations prepared by the Financial Stability Board on behalf of the G20 as insufficient as they merely propose value deductions (“haircuts”) for re-pledging securities.
It is not true that a revival of credit securitisations is necessary to provide loans to small and medium sized enterprises (SMEs), says Reiners. In many countries, SMEs are often overwhelmed by loan offers, but are unwilling to borrow more until the economy recovers.
Furthermore, Emerging Economies and the Global South have had positive experiences with loan contingents. “In the past, banks were required to reserve minimum quotas for affordable loans to SMEs. Unfortunately, trade agreements have declared this proven practice to be a trade barrier and pushed for dismantling it”, says WFC founder and chair Jakob von Uexkull.
Unless it includes the shadow banking sector, the G20-initiative on a tax information exchange will not be effective, warns the WFC.
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