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The European Banking Authority (EBA) Guidelines on exposures to ‘shadow banking entities' will support institutions and banking supervisors across the EU in minimising the risks arising from exposures to entities that carry out bank-like activities outside regulated frameworks. The Guidelines ensure institutions have sufficient information about their shadow banking counterparties so they can make an informed risk assessment of their exposures and also detail the requirements for institutions to set limits to both individual and aggregate exposures to shadow banking entities. For those institutions that do not have sufficient information on their exposures to shadow banking counterparties, the EBA requires a fallback approach involving a fixed limit to all or some of these aggregate exposures.
The focus of the Guidelines is on entities that pose the greatest risks in terms of both the direct exposures institutions face and also the risk of credit intermediation outside the regulated framework. For this purpose, ‘shadow banking entities' are defined as entities that carry out credit intermediation activities (i.e. bank-like activities involving maturity transformation, liquidity transformation, leverage, credit risk transfer or similar activities) without falling within the scope of consolidated supervision (or equivalent third country legal frameworks). In addition, ‘excluded undertakings', which are subject to an appropriate and sufficiently robust prudential framework, are not to be considered as shadow banking entities.
The EBA Guidelines will apply as of 1 January 2017 and, together with the Report, will inform the European Commission's work in relation to its upcoming report on the appropriateness and impact of imposing limits on exposures to shadow banking entities.
Guidelines on Limits to Exposures to Shadow Banking Entities
Report on institutions exposures to shadow banking entities