U.S. and global regulators need to take a hard, comprehensive look at the systemic risks present in wholesale short-term funding markets. Analysis of the appropriate ways to address these vulnerabilities continues as a priority this year for the Federal Reserve.
In the short term, though, there are several key steps that should be taken with respect to shadow banking to improve the resilience of our financial system. First, the regulatory and public transparency of shadow banking markets, especially securities financing transactions, should be increased. Second, additional measures should be taken to reduce the risk of runs on money market mutual funds.