Yesterday, The Commission presented in a Press realese a roadmap for tackling the risks inherent in shadow banking and draft regulation on money market funds.

It outlines the priorities identified on which the Commission intends to take initiatives in areas such as:

  •  Provision of a framework for money market funds the new rules proposed today cover money market funds (MMFs) that are domiciled or sold in Europe and aim to improve their liquidity profile and stability:
  •  Transparency of the shadow banking sector: to be able to monitor risks in an effective manner and intervene when necessary, it is essential to collect detailed, reliable and comprehensive data on this sector.
  • Securities law and the risks associated with securities financing transactions (principally securities lending and repurchase transactions). These transactions can contribute to an increase in leverage and strengthen the pro-cyclical nature of the financial system, which then becomes vulnerable to bank runs and sudden deleveraging. Furthermore, the lack of transparency of these markets makes it difficult to identify property rights (who owns what?), monitor risk concentration and identify counterparties (who is exposed to who?)
  • Provision of a framework for interactions with banks. The high level of interconnectedness between the shadow banking system and the rest of the financial sector, particularly the banking system,constitutes a major source of contagion risk. These risks could notably be addressed by tightening the prudential rules applied to banks in their operations with unregulated financial entities.

Link: http://goo.gl/nRhsWt

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