When the first wave of the coronavirus pandemic hit in the spring of 2020, it triggered a sudden financial crisis and was accompanied by a lockdown. However, banks, which are the cornerstones of the monetary system, have not participated to a large extent, which is a pity for the global economy. Instead, the problem lies in the growing and weakly regulated “non-banking sector”, which the Bank for International Settlements estimates now account for nearly half of all financial assets. It is time for these shadow banks to step out of the shadows and be regulated like traditional banks.

On Monday, the Bank for International Settlements (BIS), the central bank’s coordinating agency, wisely Call for stronger supervision Sector, which is becoming more and more important to most of the basic operations of finance. This call should be heeded. Stricter banking regulations introduced after the 2008 financial crisis helped the banking system to be more resilient—showing its value during the turmoil in March 2020—but it also promoted the risk-taking of some “shadow banks”, such as bonds. Funds and private lenders.

However, these non-banking institutions may exacerbate the recession, just like their more traditional cousins. Last year, open-end bond funds faced massive redemptions similar to bank runs. These funds provide investors with complete liquidity, allowing them to immediately recover the value of their investments, but the funds themselves have more illiquid assets. As investors were frightened by the pandemic, these funds were forced to sell their most liquid assets, usually U.S. Treasury bonds, at steep discounts in response to redemptions.Asset sell-off and The chaos in the world’s most important asset market It didn’t stop until the US Central Bank, the Federal Reserve, stepped in as the “dealer of last resort”.

As Written by the Bank for International Settlementss In calling for stricter supervision, it would be much better to solve the cause of the problem at the root, rather than relying on such temporary measures Central bank interventionIf speculators believe that the central bank will eventually intervene in times of chaos, then their own reasons for managing risk will be reduced. The need to stabilize shadow banking through loose monetary policy may conflict with other goals, such as curbing inflation.

The first step is to encourage more transparency, especially to make the link between shadow banking and more normal banks clearer. Regulators must see the channels of financial contagion and the degree of “hidden leverage”. Ultimately, this will require more comprehensive disclosure requirements to follow up. The Bank for International Settlements also called on shadow banks to have “counter-cyclical buffers” like ordinary banks-in this case, mainly stocks with high liquidity reserves to deal with redemptions during the crisis.

Ideally, the market will Provide more “discipline”. Small fluctuations in the financial market provide investors with a useful reminder that prices can fall or rise.In fact, in 2013 when the Fed started to slow down its asset purchases after the 2008 crisis, the “shrinking panic” reminded investors that stock and bond prices Inevitably rise.

However, policymakers cannot choose the timing and severity of such incidents. Nor should they deliberately create a downturn or credit panic. A better option is to follow the recommendations made by the Bank for International Settlements and by illuminating the dark corners of the financial system, ensure that what they find there is prepared for the next crisis.