A couple of months ago Mark Thoma wrote about Shadow Banking Dangers "The recent Dodd-Frank financial reform legislation takes important steps toward stabilizing the financial sector, but it may have created a false sense of security. There is a large and worrisome vulnerability to bank runs that the legislation did not address, and we are not as safe as we could be from another financial panic."
"One approach to solving this problem is to provide deposit insurance in the shadow banking system that mimics the insurance available to traditional banks. But regulators are reluctant to expand the explicit government commitments to the financial system to this degree. A more likely approach is to restrict the allowable collateral to ultra safe assets such as Treasuries, and there is good news along these lines. The Federal Reserve Bank of New York is working on a proposal to make shadow banking safer by tightening up collateral requirements."
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