04 September 2013

EBF welcomes Commission’s communication on shadow banking, but is concerned by potential funding impact of MMF proposal

Shadow Banking

The EBF welcomes the Commission’s communication on shadow banking, which sets out its approach on ensuring that the extensive regulation placed on banks recently is not circumvented by “non-banks” in the parallel banking sector. “Same business, same rules”, declared Robert Priester, Deputy Chief Executive of the EBF. “Clearly, any organisation carrying out the tasks of a bank should be captured by comparable rules over that activity as banks.”

The EBF will be evaluating the shadow banking communication and any proposals particularly when dealing with money markets, securities lending and repo transactions, the three areas which are of particular concern to our sector.

Press release

MMFs

The Commission proposal to regulate MMFs intends to ban certain transactions like repo agreements, and would restrict the instruments these funds can invest in. In addition, it would demand a cash buffer equal to at least 3 per cent of total value of assets for Constant Net Asset Value MMFs which could represent up to 10 times the return achieved by such funds. Furthermore MMFs would have to comprise at least 10 per cent of assets maturing daily and at least 20 per cent of assets maturing weekly, which may prove difficult to maintain if assets are removed from the investable scope.

“Some of these proposals do not seem particularly well suited to Europe’s reality”, declared Guido Ravoet, EBF Chief Executive. "It is important to strike a sensible balance between the need for greater transparency for investors with increased stability on the one hand while retaining MMFs as important providers of short term funding for banks, companies and public authorities.”

In the EU, money markets funds are mainly used by corporations seeking to invest their excess cash over a short period of time, which can ultimately be used by banks as a source for funding to support lending to the real economy.

While the shadow banking system represents roughly 95 per cent of United States banking liabilities, shadow banking in Europe amounted to just 18 per cent of EU bank liabilities in 2012, which represented a contraction of 12 per cent according to ESMA – the European Securities Markets Authorities.

It is of course important that there is effective oversight over all parts of the financial system, however, money market funds must be retained as important providers of short term funding for banks, companies and public authorities.

Full statement

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