EU seeks shadow bank rules
Financial operators on the fringes of the traditional bank system could be made to hold more capital, and mainstream banks forced to limit exposure to risk in the $60 trillion (£38.07 trillion) shadow banking sector, a draft EU paper showed. In the draft consultation document obtained by Reuters, the bloc’s executive European Commission said shadow banking, including money market funds, exchange-traded funds, repurchase agreements and securities lending, could play a “potentially useful” role. But the Commission said the financial crisis showed they pose major risks to financial stability if they fail in a disorderly way. “As long as such activities and entities remain subject to a lower level of regulation and supervision than the rest of the financial sector, reinforced banking regulation could drive a substantial part of banking activities beyond the boundaries of traditional banking and towards shadow banking,” the paper said.