In a final report, the IOSCO Board examined how regulators in various jurisdictions have responded to risks associated with the development of "Loan Funds," which may compete with bank lenders and can be said to operate as "shadow banks." The report divided Loan Funds into two types: (i) the "loan originating fund," which may grant and restructure loans (e.g., subsequent to the amendment of loan conditions such as prolongation or deferral), and (ii) the "loan participating fund," which may acquire and restructure, but not originate, loans. According to the report, the United States is the most important jurisdiction for Loan Funds, but even in that jurisdiction, the market is not large enough to be significant in the credit markets as a whole.
The report noted that regulators identified liquidity, credit and systemic risks as potential risks of Loan Funds. Moreover, the report continued, loan origination by Loan Funds as a so-called "shadow banking activity" warrants the monitoring of future developments. Nevertheless, the report concluded, further analysis of Loan Funds is not warranted at this stage, since regulators in many jurisdictions believe their general rules for funds address these risks sufficiently.
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