Fed focuses on shadow banking as it gauges financial risk

Washington

FEDERAL Reserve officials, fresh from the latest round of tests designed to ensure the safety of the biggest banks, are now peering into the darker corners of the financial system as they assess the risks of another crisis.

One source of concern: tighter regulation of banks is prompting more borrowers to seek funding through the US$25 trillion shadow banking system - money-market mutual funds, hedge funds, brokerages and other entities that face fewer restrictions.