Brussels, 30/04/2012 (Agence Europe) - EU Internal Market Commissioner Michel Barnier has set out the European Commission's plans for dealing with shadow banking, which he described as a complex ecosystem accounting for between 25% and 30% of the world financial market (see EUROPE 10577). “I am aware of the role that alternative sources of financing have to play in these difficult times for the European economy, where the banks have to adhere to more stringent prudential ratios. Alternative financing is therefore necessary, but it is important that it is carried out in a solid and transparent framework”, said Barnier at a European conference on Friday 27 April 2012, which is part of the consultation process that opened last month.
The commissioner set out a four-pronged approach to regulation: (1) “First of all, we aim to ensure that regulators and supervisory authorities can have a complete overview. In other words, they need to have the means and powers to familiarise themselves with and master the leverage exerted by all the financial intermediaries in the shadow banking system, covering practices such as securities lending, rehypothecation and repurchasing”; (2) “Second general principle: prevent rather than cure. we do not wish to repeat the mistakes made with the special securitisation vehicles, which were left to develop by the supervisory authorities and which served no purpose other than regulatory arbitrage”; (3) “Thirdly, we will be very careful not to call into question the alternative financing chains, which complement bank lending and are of direct benefit to the real economy”; (4) “Lastly, we must, of course, ensure consistent regulation across the various financial sectors. In particular, I believe that the minimum capital to be tied up for a single operation must be comparable across all sectors to avoid encouraging any form of supervisory arbitrage.”
Shadow banking is also being examined internationally. Under the aegis of the G20, the Financial Stability Committee will be unveiling suggestions after the summer break, with the June G20 summit in Mexico serving as a preliminary review. Barnier said that the Liikanen Group's recommendations on European banking are expected in October, and might impact on shadow banking. He said that targeted, sector-specific consultations would then be organised, followed no doubt by the publication of draft regulations. (MB/transl.fl)