In the same spirit, recent ETFs innovations underline the need for securities regulators to work closely with bank supervisors and macroprudential authorities on shadow banking and what I earlier called “financing markets”. For both physical and synthetic funds, the underlying collateral pools are being swapped to provide financing for dealers and banks. It is not clear whether bank supervisors have caught up with this, or whether the risk of the collateral swaps being called is treated appropriately in regulatory maturity-mismatch ladders. Who would have guessed that vanilla collective investment schemes, could be turned to this purpose? The truth is that any pool of assets can be. While the FSB has already called for authorities to act to keep the evolution of ETFs on a sustainable path, the broader lesson is that securities regulators need to be alive to the need  11  Securities and Exchange Commission, Release No. 33-9117, Asset-Backed Securities (April 7, 2010). 12  The FSB took a small step towards addressing this issue in its March 2011 publication, “Thematic Review on Risk Disclosures Practices: Peer Review Report”. This did not get much traction at the time, but the FSB’s Vulnerabilities Group, chaired by Jaime Caruana and on which I sit, plans to draw on that Review in its own work programme. In the US, as noted, the SEC has begun to grapple with this set of issues. Its April 2010 notice proposed enhanced disclosures requirements for asset-backed securities sold privately as well as via the public (registered) transactions.
I believe that central banks can play a special role in this area. Important “intra-financial system markets” are not restricted to banking. The reinsurance markets, and the mechanisms for sharing risks in Lloyd’s of London, are other examples. As are the inter-dealer markets in derivatives, which have traditionally employed different protocols (notably collateralisation, under Credit-Support Annexes) than get used in transactions with end users. Away from banks, these Over the Counter derivative markets have been the principal focus of policy. They are being rethought, under a mandate from the G20 Leaders7. The third category of markets is those that matter directly in their own right to end users. Notably the primary markets in equity and debt. These markets and the associated secondary markets often rely on “market makers” for liquidity, but they are not the marginal source of financing or risk management for banks and dealers. In the past, they have often  4  Drysdale, Lombard Wall, and so on. 5  See Tucker P M W (2010), “Shadow Banking, Financing Markets and Financial Stability”, January 2010. 6  See Gary Gorton “Securitized Banking and the Run on Repo”. 7  In September 2009, G-20 Leaders agreed in Pittsburgh that: “All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements.