Secondly, the systemic risk building up in the shadow banking system and the failure of a shadow banking entity should not cause contagion to the regular banking sector. Thus there is a need to regulate and supervise the link between the regular banking sector and the shadow banking system. Much has already been done to this end.
They may wish to take some steps first to strengthen the capitalisation and risk management capabilities of their banks and to enhance the quality of bank supervision. The text of Basel II will be released today on the website of the Bank for International Settlements.