Policymakers from the world's top economies meet this weekend in Mexico City to begin finding common ground to tackle the world's economic challenges, which include reining in a $60 trillion financial sector on the fringe of mainstream banking.
Leaders of the Group of 20 asked their task force, the Financial Stability Board (FSB), to come up with plans to regulate "shadow banks" like hedge funds, money market funds, repurchase agreements and securities lending. "It will be a major point at issue this year. However, we are not at a stage where the FSB will reach some kind of decision to be reflected (in the) G20 debate," a diplomat attending the February 25-26 meeting of G20 finance ministers and central bankers said.
Regulators are still looking into the sector, but say action is inevitable to stop riskier activities from migrating as mainstream lenders become more tightly supervised. The FSB set up working groups last year to study measures such as limits on exposure to shadow banks and forcing lenders to hold more capital to cover that exposure.
Many of the groups report in July, too late for the June G20 leaders' summit, but they will be given details by then on the "design" of regulation for shadow banks, a second G20 source said. The financial sector is watching closely as to how regulators will intervene in an area which was only identified as a sector in 2007.