The shadow banking sector — which includes hedge funds and private equity funds — has the potential of being a risk to the financial system, said John Taft, CEO of RBC Wealth Management-U.S., who spoke Wednesday on “Enlightened Financing” at The Forum for Sustainable and Responsible Investment conference in Chicago.
“Any time risks are moved from the regulated world to the non-regulated world … there is a potential for excesses to buildup,” Mr. Taft said in an interview at the conference following his talk.
Mr. Taft added that there is no need to “sound alarm bells, but it is something that needs to be watched and it is being watched.”
The Federal Reserve is reportedly investigating the shadow banking system.
“Unregulated shadow banking like hedge funds lending money to lower credits, if unregulated, there’s a chance it will go wrong,” Mr. Taft said during a question-and-answer period following his talk. “Shadow banking is on its way to being a source of risk.”
