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EU to tackle ‘shadow banking’

Posted by seumasach on March 20, 2012

New Europe

19th March, 2012

As part of regulatory reforms in the financial sector, the European Commission has decided to tackle the growing area of non-bank credit activity, the so-called shadow banking, which has so far eluded the focus of prudential regulation and supervision.

Shadow banking creates secondary source of funding and provides investors alternative to bank deposits. However, it introduces potential threats to long-term financial stability due to unknown sources of risk and potential spill-over effects from the shadow banking sector to the banking sector.

Following the G20 sessions in Seoul in 2010 and in Cannes in 2011, the Financial Stability Board (FSB) commenced developing recommendations on the oversight and regulation of shadow banking with participation of the Commission.

Internal Market and Services Commissioner Michel Barnier stressed: “The EU has shown global leadership in implementing ambitious reforms in the area of financial regulation,” and added that the Commission’s intention was to prevent financial entities “circumventing existing and foreseen rules, creating new sources of risk in the financial sector”.

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