Wednesday

1st Apr 2020

EU still unsure what 'shadow banking' really is

  • Easy credit and mortgages were one of the causes of the 2008 financial crisis (Photo: Jeremy Brooks)

The EU is considering new rules on so-called shadow banking - unregulated investment funds and mortgage institutions - but it still has to define exactly what type of financial activities it covers.

"Shadow banking is a parallel banking system for which we do have to create effective regulation and supervision, otherwise the financial markets may well transfer part of their activities and products to this unregulated market and increase the risk of new crises," financial markets commissioner Michel Barnier said Monday (19 March).

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or join as a group

Five years after the collapse of the Lehman Brothers investment bank, which triggered the global financial crisis, the EU commission is still working on regulation aimed at curtailing risks in the financial markets.

Shadow banking - a term encompassing simple services such as mortgages, loans given without deposit, and complex investment schemes run by hedge funds - represents some 25-30 percent of the world's banking sector and its share is increasing in Europe, Barnier said.

"We have to define the term firstly. We want to act, but first we need to understand it and to see if our list is complete," the commissioner said.

Asked if he was concerned that the slow response after the 2008 crisis still leaves Europe exposed to risks, Barnier said: "Yes, I am concerned. We are still learning the lessons of Lehman Brothers. We are not out of the woods yet, we have to be honest about it."

He admitted that the legislative process is "slower than the markets", since it takes over a year to adopt new legislation from the moment it has been tabled.

Barnier said that amendments to existing legislation or draft legislative proposals may be tabled by the end of the year so as to cover all 'shadow banking' activities.

But German investment funds have criticised the commission's approach. The German Association of Investment and Asset Management (BVI) said oversight of unregulated financial instruments and institutions was overdue, but its head, Thomas Richter, said investment funds are already covered by other legislation. "Our industry certainly cannot complain about a lack of regulation," he said in a statement.

One expert in financial services told this website that the consultation paper reflects a US view that these services are not regulated at all.

"The question is what they mean by shadow banking. In the US, shadow banking concentrates on products that are highly regulated here in Europe. So this exercise is totally useless," Diego Valiante from the Brussels-based Centre for European Policy Studies said.

In the US, treasury secretary Timothy Geithner earlier this month warned against the risks posed by this sector: "A large shadow banking system had developed without meaningful regulation, using trillions of dollars in short-term debt to fund inherently risky financial activity."

The commission plans to end the consultation by 1 June and organise a conference on shadow banking on 27 April.

EU clamps down on shadow banking

EU commissioner Barnier has laid out plans to regulate the shadow banking sector, seen as playing a major role in the 2008 financial crisis.

No breakthrough at EU budget summit

EU leaders failed to reach agreement on the EU's long-term budget, as richer states and poorer 'cohesion countries' locked horns. The impasse continues over how to fund the Brexit gap.

EU leaders struggling to break budget deadlock

Cuts to innovation, space, neighbourhood and other programme-spending push down the latest budget proposal on the table of EU leaders. Rebates could stay on, to win the support of the net-payers for a deal.

Unhappy EU leaders begin budget haggle

EU leaders arriving at the Brussels summit criticised the budget proposal of EU Council president Charles Michel, as richer member states insisted holding onto their rebates, while poorer countries wanted to avoid deep cuts to their subsidies.

News in Brief

  1. Danish conservatives want Orban party kicked out of EPP
  2. Dutch finance minister repents on virus help
  3. France to house domestic violence victims in hotels
  4. Europe sends medical goods to Iran, despite US embargo
  5. Commission sets consultation on raising 2030 climate target
  6. 12-year old Belgian girl dies of coronavirus
  7. EU commission: no 'indefinite' emergency measures
  8. Denmark plans 'gradual' return to normal after Easter

Vietnam sent champagne to MEPs ahead of trade vote

A trade deal with Vietnam sailed through the European Parliament's international trade committee and after its embassy sent MEPs bottles of Moet & Chandon Imperial champagne over Christmas.

Feature

Promises and doubts: Africa's free-trade adventure

The EU is hoping that a continent-wide free trade agreement in Africa will help lift millions out of poverty and help solve issues of security and migration. But its message of values and equal partnership do not resonate with everyone.

Stakeholders' Highlights

  1. UNESDAMaking Europe’s Economy Circular – the time is now
  2. Nordic Council of MinistersScottish parliament seeks closer collaboration with the Nordic Council
  3. UNESDAFrom Linear to Circular – check out UNESDA's new blog
  4. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  5. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  6. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms

Latest News

  1. EU cancels April Fool's 'fake news'
  2. A coronavirus 'Marshall Plan' alone won't be nearly enough
  3. Trying to think straight about coronavirus
  4. Berlin ready to airlift Greek island refugees
  5. Von der Leyen criticises Hungary, but fails to mention it
  6. Air pollution drops in Europe, but how long will last?
  7. Human rights abusers don't stop for virus, MEPs tell EU
  8. EU states urged to share sick patients

Join EUobserver

Support quality EU news

Join us