Reuters: Regulatory News: Basel plans to toughens up 'shadow bank' capital rule

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Basel plans to toughens up 'shadow bank' capital rule Jul 5th 2013, 10:07 LONDON, July 5 | Fri Jul 5, 2013 6:07am EDT LONDON, July 5 (Reuters) - Global regulators proposed on Friday that banks set aside more capital to cover investments in "shadow banks" such as private equity or hedge funds to improve cover for underlying risks. Policymakers worry that as mainstream banks become more tightly regulated, risks will shift to other financial businesses that handle credit but have been less regulated than the banks. The Basel Committee of banking supervisors from the world's top financial centres said on Friday that more clarity and consistency is needed on its existing rule for how banks set aside capital to cover exposure to equity funds. Basel will make it a requirement for banks to adopt a "look-through" approach, meaning that banks will have to calculate risks from their exposure to a fund as if they owned the fund. A public consultation on the proposed change will close on Oct. 4. "The committee believes the revised standard will more appropriately reflect the risk of a fund's underlying investments and its leverage," the committee said in a statement. "The revised standard will also help address risks associated with banks' interactions with shadow banking entities."

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