U.S. regulators have spent the past six years forcing banks out of businesses seen as risky, but now they are beginning to worry that they have pushed some financial activity into the shadows and outside their legal reach, the Wall Street Journal reported today. Regulators on the Financial Stability Oversight Council yesterday said that they are monitoring new practices by nonbank financial firms — including mortgage-servicing companies, insurers and asset managers — concerned that their activity could pose an emerging threat to the financial system. Some of these firms aren't required to maintain the same capital cushions that banks need to guard against a severe economic downturn, the regulators said. While regulators in the past have expressed concern about systemic risks of very large nonbank firms, the new report deals with nonbank firms generally and addresses concerns not previously raised. Since the crisis, U.S. regulators have subjected banks to stricter rules, including requiring that they hold more loss-absorbing capital and reduce exposure to riskier businesses. Regulators now are monitoring whether financial firms unencumbered by similar restrictions are stepping into the void left by big banks.
