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Fischer, who chairs a Fed subcommittee on
financial stability, said there is less leverage, less use of
securitization, and more moderate reliance on short-term funding
among the insurance companies, mutual funds, money market funds
and hedge funds that make up the U.S.'s sprawling nonbank
financial sector.
"At this stage of the recovery, there are signs of reduced
nonbank financial sector vulnerabilities," Fischer said in
remarks prepared for delivery at a conference in Frankfurt,
Germany. "The available data paint a picture of a nonbank sector
that has generally reduced its vulnerability to the types of
shocks that we saw during the crisis."
Even so, he said the Fed and other regulators still need more
data on the activities of hedge funds and derivatives markets to
assess their risk to the overall economy, and that the reliance
of some firms on short-term funding remains a possible risk.
The nonfinancial industry plays a major role in U.S. credit
markets. It includes the companies often referred to as "shadow
banks" because they perform many of the same credit functions as
commercial lenders but are not subject to the same regulations.
Their connections with commercial banks and the economy overall
were not well understood before the crisis, when their
involvement in subprime mortgage lending and investments
contributed to the largest economic downturn since the Great
Depression.
(Reporting by Howard Schneider; Editing by Leslie Adler)
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