Because if there is, there’s not a hell of a lot she can do about it.

International Monetary Fund Managing Director Christine Lagarde asked Ms. Yellen in a question-and-answer session at the IMF what the Fed was doing to address risks from non-banks, which include hedge funds, private equity and derivatives. Ms. Yellen replied: “You’re pointing to something that is an enormous challenge.”

“We simply have to expect that when we draw regulatory boundaries, and supervise intensely within them, that there is the prospect that activities will move outside those boundaries and we won’t be able to detect them, and if we can, we won’t have adequate regulatory tools,” Ms. Yellen said. “That is a huge challenge to which I don’t have a great answer.”

Fed’s Yellen Says Regulating Shadow Banks a ‘Huge Challenge’ [WSJ Real Time Economics blog]

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