Reuters: ECB's Liikanen says regulation could be extended to shadow banks
26 April 2014
Major organisations that carry out banking activities, but are not banks, may become so important to the financial system that they need to be regulated like traditional banks, an ECB governing council member said.
Financial regulators are seeking to shine a light on so-called "shadow banking", a €24 trillion industry in Europe - half the world's total - that comprises money market funds, some hedge funds, and firms involved in securities lending and repurchase markets.
Such groups borrow and lend like banks, but because they are not banks they often fall outside the remit of regulators.
Speaking at the Finnish Social Forum, Erkki Liikanen said there was a risk that tighter banking regulation in the aftermath of the global financial crisis could lead to growth in unregulated shadow banking.
If markets then began to expect that shadow banks would have to be bailed out with public funds to prevent a financial sector collapse, the problem would not have not been solved, Liikanen said, adding that authorities were following developments.
Systemically important banks face higher capital requirements than smaller banks under new rules, called Basel III, which are currently being phased in.
© Reuters
