Consulting

EU Looking for Ways to Regulate Shadow Banks


So-called 'non-banks' are by no means demonized by the European Commission. In fact the contrary is true as, from the Commission's perspective, they represent an additional source of financing and offer investors alternatives to bank deposits. However, they also present a risk to the entire finance system. The EU wishes to counteract this risk potential by regulating the shadow banking system.

Upon the occasion of the introduction of the green paper on already-existing or suggested EU legislation on shadow banks on 03.19.2012, EU Commissioner for Internal Market and Services, Michael Barnier, explained: "What we don't want is that activities and businesses within the finance sector circumvent existing and planned regulations, bringing about the accumulation of new risk factors within the finance sector. For this reason we must improve our knowledge as to which companies account for the shadow banking sector, what their activities consist of and what type of regulation and what level of monitoring can be deemed appropriate for them. We must bring transparency to all areas of the finance sector."

According to the definition of the Financial Stability Board (FBS), currently drafting regulatory suggestions for the finance market on behalf of the G-20, shadow banks carry out financial operations outside the heavily regulated banking sector. According to the FBS this could include, among other activities, money market funds, investment funds, the provision of credit or working with borrowed funds (for example hedge funds), financing companies and securities companies, which provide credit or credit guarantees in an unregulated manner, and insurers and reinsurers, which issue or guarantee credit products.

In order to promote the regulation of the shadow banking sector, a public consultation regarding the areas of banking, asset management, securities lending and repurchase agreements, securitization and other companies within the shadow banking sector will take place via the Internet until 6.1.2012. In particular, however, the Commission is extending an invitation to a public conference, yet limited in terms of the number of participants, on 4.27.2012 in Brussels. The information acquired in this way is intended to flow into future regulatory suggestions.


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