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"It can also create opportunities for arbitrage that might undermine stricter bank regulation and lead to a build-up of additional leverage and risks in the overall financial system," the FSB said in a statement."Short-term deposit-like funding of non-bank entities can lead to 'runs' in the market if confidence is lost," the FSB said.

The FSB is pursuing a two-pronged approach to regulating the sector -- the banks that support it and the shadow-banking entities themselves.

 statement from the Israeli foreign ministry said: "The government of Israel expresses sadness and disappointment over the decision by the Brazilian president Luiz Inacio Lula da Silva a month before he steps down."Recognition of a Palestinian state is a breach of the interim agreement which was signed between Israel and the Palestinian Authority in 1995 which said that the issue of the status of the West Bank and Gaza Strip would be discussed and resolved through negotiations," it said.

Israel has expressed disappointment at Brazil's decision to recognise a Palestinian state within the 1967 borders, saying it flew in the face of efforts to negotiate a peace deal.