web of interconnections in the financial system that, in some circumstances, can increase the likelihood or severity of systemic stress. for example, movements in collateral values can trigger margin calls and fire sales of assets, and thus activities that depend on market - valued collateral can be vulnerable. the financial stability board is currently considering reforms for margins on securities financing transactions. other interconnections involve exposures to counterparty default. the new regulatory regime for derivatives, which i will discuss in a moment, seeks to mitigate counterparty risk. it is often said that stronger regulation of the banking sector will cause activity to move outside the perimeter of regulation. this evolution also could lead to greater complexity, such as longer chains of interconnections, which makes it more difficult for market participants to understand the risks arising from their exposures. examples of migration that have already occurred include the movement of many loans made to large corporations from banks to collateralized loan obligations, the securitization of many credit card receivables, and the securitization of mortgages. this kind of migration makes close monitoring by regulators particularly important. authorities should monitor for changes that may arise in response to the new regulations or to changing economic and financial conditions. they will need information to do so, but for many nonbank entities, the flow of information is currently nonexistent or very limited and informal. another force for evolution in the nonbank sector is the demand for safe money - like assets. some argue that this demand for private money creation prompted the growth in “ shadow banking ” prior to the crisis. 7 indeed, whenever shortages develop, we might expect the nonbank see gorton and metrick, “ securitized banking, ” in note 4 ; samuel g. hanson, andrei shleifer, jeremy c. stein, and robert w. vishny ( forthcoming ), “ banks and patient fixed - income investors, ” journal of financial economics ; and zoltan pozsar, tobias adrian, adam ashcraft, and hayley boesky ( 2010 ), “ shadow banking, ” staff report 458 ( new york : federal reserve bank of new york, july ; revised february 2012 ). bis central bankers ’ speeches financial system to create assets that appear safe but that could in certain circumstances pose systemic risks. progress to date we have seen some progress in improving the regulation of the nonbank financial sector. let me mention four areas of reform. the first is the

stanley fischer : nonbank financial intermediation, financial stability, and the road forward speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at the “ central banking in the shadows : monetary policy and financial stability postcrisis ” 20th annual financial markets conference, sponsored by the federal reserve bank of atlanta, stone mountain, georgia, 30 march 2015. * * * it is an honor to speak at the federal reserve bank of atlanta ’ s 20th financial markets conference, and i am grateful to president lockhart and the organizers for inviting me to do so. 1 this evening i would like to take stock of progress on financial reforms in the nonbank financial sector and highlight some principles for approaching prudential regulation of this sector to further strengthen financial stability. the nonbank sector includes firms with diverse business models and practices, many of which differ greatly from those of banks. even so, nonbank firms and activities can pose the same key vulnerabilities as banks, including high leverage, excessive maturity transformation, and complexity, all of which can lead to financial instability. the reforms undertaken to date reflect both the differences and similarities between the nonbank and bank sectors. while there has been progress on the financial reform front, we should not be complacent about the stability of the financial system. regulation often creates incentives for activity to move outside the regulatory perimeter, and market participants respond to incentives. thus we should expect that further reforms will certainly be needed down the road. the nonbank sector was an important source of vulnerability in the crisis as you know, the nonbank financial sector in the united states is larger, and plays a more important role, than it does in most other countries. in recent years, about two - thirds of nonfinancial credit market debt has been held by nonbanks, which includes market - based funding by securitization vehicles and mutual funds as well as by institutions such as insurance companies and finance companies. nonbanks are involved in many activities within the financial system as well, such as securities lending. the nonbank sector has produced material benefits : increased market liquidity, greater diversity of funding sources, and – it is often claimed – a more efficient allocation of risk to investors. however, threats to the stability of the overall financial system have also increased, as was evident in the recent financial crisis. it is now eight years since major cracks in the financial system that led to the global financial crisis first appeared