Regulators threaten to get tough on shadow banking

06/20/2008 | MarketWatch

Shadow banking has become a $10 trillion market and a vital source of funds to spur the U.S. economy, but the subprime meltdown exposed major flaws. "The shadow banking system model as practiced in recent years has been discredited," said Ramin Toloui, executive vice president at Pimco. Industry observers say Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Bros. and other large brokerage firms may have the most to lose if regulators tighten the reins on shadow banking.

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