WASHINGTON—There needs to be greater “market discipline” in what’s known as the shadow banking sector, according to CFPB Director Rohit Chopra.
In a statement, Chopra cited the role of the Financial Stability Oversight Council (FSOC)—of which NCUA is a member--in eliminating the expectation of government protection from losses in the event of company failure, MyChesCo reported.
Chopra said financial history often repeats itself, with regulators and policymakers forgetting the lessons learned from periods of instability.
“However, he noted that families across the country do not have this luxury, as the economic and psychological damage inflicted by a crisis can linger for many years,” MyChesCo stated.
Strong Support
According to the report, Chopra expressed strong support for the recent move towards promoting market discipline, and said the removal of procedural restrictions established in 2019 sets up a more suitable and enduring process for using the designation authority.
He also urged for the implementation of guidance to evaluate whether any shadow bank meets the statutory threshold for enhanced oversight, MyChesCo reported, saying he doubts the answer to that challenge is zero and suggesting the effort should build on the work that FSOC committees have already conducted in the context of sector-wide reviews.
Can’t Forget the Past
According to Chopra, the lessons of the 2008 financial crisis must be remembered, and he stressed that unchecked shadow banking risks can devastate households and small businesses.
He also warned that a lax approach to these risks could disadvantage smaller players and regulated institutions, MyChesCo added.
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