Fed to propose margin rule aimed at shadow banking: Tarullo

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WASHINGTON (Reuters) – The Federal Reserve plans to issue a rule proposal aimed at applying minimum margin requirements for certain forms of securities financing deals, in a move aimed at reining in shadow banking activities, a top Fed official said on Friday.

Fed Governor Daniel Tarullo, the central bank’s chief overseer of its bank regulation, said the rule would apply to the United States a rule issued by the Financial Stability Board (FSB), a global group of regulators, last year.

Tarullo said the FSB’s rule should be applied to all major financial markets given how these financing transactions move across borders. Fed officials have previously said that the shadow banking industry – which consists of mostly hedge funds and other types of non-bank lenders – pose a risk to financial stability.

“We will welcome comments on this proposal when, as I expect, the Federal Reserve issues a notice of proposed rulemaking to implement it domestically, probably by using the Federal Reserve’s authority under the Securities Exchange Act of 1934 to supplement our prudential regulatory authorities,” Tarullo said at an event sponsored by the U.S. Office of Financial Research and the government’s financial stability council.

Tarullo did not comment on monetary policy or the economy.

(Reporting by Michael Flaherty and Douwe Miedema; Editing by Andrea Ricci)