Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, what recent assessment he has made of the (a) size and (b) potential risk posed to the economy from (i) the UK and (ii) the international shadow banking system.

When appropriately conducted, shadow banking can benefit the economy by increasing the availability of credit to a range of individuals or firms, and provide a valuable alternative to bank funding. However, the Government is aware of the risks shadow banking activities can pose to financial stability.

To ensure that systemic risks to financial stability are addressed, the Government has created the Financial Policy Committee (FPC) within the Bank of England. In September last year, the Committee agreed as one of its medium term priorities the identification and management of potential systemic risks from shadow banking. Additionally at the international level, the Government is actively supporting the effective regulation of the sector in EU policymaking, and the UK authorities are playing an instrumental role in shaping the global regulatory response at the Financial Stability Board.

The Financial Stability Board’s Global Shadow Banking Monitoring Report 2013 includes its latest assessment of the size of, and trends in, non-bank financial intermediation.