It is therefore imperative to bring the secured funding markets such as repo markets within the regulatory perimeter/macro prudential framework, particularly since many entities participating in these markets are unregulated/lightly regulated. There is need for a cautious approach when the securities that are repo’ed/collateralised carry credit risk and are illiquid. 19.
This also raises the issue of interconnectedness of banks to private pools of capital that are largely unregulated. While the reform of the financial system does cover regulation of hedge funds, the general issue of banks exposures to these funds directly as well as through markets needs greater attention. The same applies to private equity which are unregulated entities.