In the Market: How regulators are using banks to illuminate shadow banks

- The Federal Reserve has proposed new rules that would allow it to gather granular details about banks' exposure to shadow banks, a move that shows how regulators are trying to understand the risks there and the limits of that approach.

One banker said regulators had been asking his firm, a major Wall Street bank, for detail on its overall exposure to individual firms that have sprawling shadow banking operations, like the big private equity firms. They even want to know if the bank is lending to a portfolio company of such funds, said the banker, who requested anonymity to speak candidly.

The issue is not lost on regulators. The chairman of Europe's banking watchdog told my colleagues last week that regulators face information "black holes" that can only be fixed by mandatory disclosure, pointing to a process that could take years. The proposal seeks to fix that by seeking more "granular information" on lending to shadow banks in a form that collects detailed, loan-level data for stress tests. The confidential forms, called FR Y-14s, are also used broadly across the Fed for supervision and assessing financial stability risks.

Andrew Metrick, a Yale finance professor and director of the university’s program on financial stability, said he did not see a better alternative. Investors are buying individual stocks at a record pace as market-beating bets dwindle to lowest ever

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