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Giving the central bank's Financial Policy Committee--Britain's "macro-prudential" authority responsible for safeguarding financial stability--the power to set and vary collateral requirements for trades in certain markets would be a "real revolution" in financial-sector regulation that extends regulators' reach beyond banks and other big firms, he said.
"What that means is the macro-prudential authority would be able to influence the degree of leverage in the shadow banking system", Mr Tucker told parliament's treasury select committee, which scrutinises economic policy. "It would be a great pity if down the road the FPC did not have that tool, because it would be what gives it some traction over the inevitably complex financial system beyond banks."
Mr Tucker's remarks underscore regulators' concerns that future crises may emerge not from banks but from hedge funds, money market funds, special purpose investment vehicles or other shadowy parts of the financial system.
He called for the FPC to be given the power to set and vary margin requirements on derivative contracts and set minimum haircut requirements on sale and repurchase agreements, or repos, a type of short-term loan. Margin requirements determine how much collateral is required to buy a security with borrowed money. Haircuts are discounts applied to assets used as collateral.