By Michael Flaherty and Howard Schneider
Stone Mountain, Ga., April 1 (Reuters) - U.S. financial regulators are struggling to agree on how to tackle the huge network of lenders operating outside of traditional banking channels, as worries grow that the lack of oversight over this system is increasing systemic risks.
While the Federal Reserve has vowed to ramp up its efforts to rein in the risks posed by non-bank lenders, defining the sector known as "shadow banks," and forming a strategy to regulate it continues to elude the central bank.
The value of U.S. financial assets held by non-banks in the U.S. reached $25.2 trillion in 2013, exceeding pre-crisis levels, according to the Financial Stability Board. Shadow banks provide an estimated 40 percent of credit in the United States.
The Fed, along with international regulators, is trying to rein in risks taken by shadow banks, despite lacking supervisory powers over much of the sector.
"There are unresolved questions at this point," Atlanta Federal Reserve Bank President Dennis Lockhart told reporters here on Wednesday.
Lockhart spoke on the final day of an Atlanta Fed conference dedicated to trying to come to grips with shadow banking and its impact on monetary policy and financial stability. But the most obvious conclusion from the event was the divergent opinions from regulators, economists and financial industry pros on how to handle shadow banking.
"The communities that are represented here are still at the questioning phase as opposed to knowing what direction to take," Lockhart said.
Non-bank lenders include money markets, hedge funds and insurers, but those industries do not want the shadow bank label, fearing increased oversight.
New York Life Insurance Chief Investment Officer John Kim on Tuesday said that while insurers do take part in shadow lending activities, they are not shadow banks.
Chief among the Fed's worries is a repeat of the 2008 financial crisis, when unregulated shadow banks exacerbated a credit market meltdown.
Yet more than six years later, how to make non-bank lending safer is a matter regulators still struggle with.
"It's not clear at all to me that making the banks safer has made the economy safer. And if you regulate the shadow banks there is less room for evasion. But there is less room for innovation," Mark Flannery, the Securities and Exchange Commission's chief economist, said on Tuesday. "There's a lot of pressure to regulate the shadow banking industry. It's a very difficult issue to figure out."
(Editing by David Chance and Chris Reese)