We need to increase the transparency of shadow banking markets so that authorities can monitor for signs of excessive leverage and unstable maturity transformation outside regulated banks.
Enhancing transparency in shadow banking is crucial for maintaining financial stability. Without proper oversight, these unregulated segments can accumulate risky practices, such as excessive leverage and unstable maturity transformations, which may lead to systemic crises. Increased visibility allows regulators to identify and mitigate potential risks early, fostering a safer and more resilient financial ecosystem. Transparency not only helps in preventing financial bubbles but also builds investor confidence by ensuring that risks are adequately monitored and managed outside the traditional banking system.
