Runnable Funding Takes Center Stage in Policy and Analysis
In a July 12, 2016 address at the Center for American Progress and Americans for Financial Reform Conference, Washington, DC, Federal Reserve Board Governor Daniel K. Tarullo provided some insights in to the Fed and FSOC’s current thinking on regulation of shadow banking.
Shadow banking is an imprecise term, so Tarullo counsels turning away from definitional questions and efforts to create a shadow banking taxonomy in favor of a greater focus on characteristics of shadow banking-related financial activities and institutions that are most likely to pose risks to financial stability. According to Tarullo, the financial crisis began as a run on short-term liabilities by investor who had come to doubt the value of the assets they were funding through various kinds of financial intermediaries. Because these kinds of runs and panics are characteristic of every financial crisis, Tarullo suggests focusing analysis and policy initiatives with regard to the universe of shadow banking activities on the presence of runnable funding.