Leaders of the G20 economies called for a crackdown on shadow banks in 2009 during the last financial crisis but five years on, regulators freely admit they are still not sure how the vast sector actually works. "We need to become better in identifying risks in securities markets but that is less about more regulation, and more about supervision of the non-banking sector," Steven Maijoor, chairman of the EU's European Securities and Markets Authority (ESMA), told the summit.

 

Regulators say analysis is still in its infancy without the basic data, and there is a need to stay neutral on whether shadow banking is good or bad or a mix of the two. "Should everyone be regulated in the same way as banks? It's not clear to me that should be the case. We need to understand what it's about", a European financial supervisor said.

 

Efforts by the EU and the United States market regulators to record just derivatives trades are patchy, with a single global snapshot of risk still far from possible. Creating a cohesive set of global numbers for securities lending and borrowing, repos, money market funds and other parts of the shadow banking sector is an even more daunting task.

 

Meanwhile, Mark Carney, the Bank of England governor who heads the G20's Financial Stability Board, wants shadow banking rules largely completed by the next G20 summit in November. Many of the institutions like hedge funds are now regulated but supervision of the complex web of shadow banking activities and its links to traditional banks is still relatively new and far from complete.

 

The United States and EU have failed so far to agree on rules for money market funds in their own territory let alone on a global basis, and there is a battle over whether shadow banking entities are systemically important and therefore should face extra capital requirements like the very big banks.

 

The G20 pushed through at breakneck speed a single set of tougher global capital rules known as Basel III, but given the lack of data about shadow banking, this one size fits all approach has quietly been ditched as practicalities and fears of crimping funding to the economy take the upper hand.

 

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