Shadow Banking discussed in Finance Watch
On 13 March 2012, the NFU secretariat participated in Finance Watch’s first workshop on shadow banking that was held in Brussels. One of the main issues discussed at the meeting was how to define shadow banking. If we don’t know what we are talking about, how can we lobby for change?
The fact is, nobody has a perfectly good answer to that question. For example, the Internal Market and Services Commissioner Michel Barnier said last week in a press release accompanying a Green paper on shadow banking that “…we need to better understand what shadow banking actually is and does, and what regulation and supervision may be appropriate, and at what level.” The Financial Stability Board has defined shadow banking as “the system of credit intermediation that involves entities and activities outside the regular banking system”. Examples are Money Market Funds, Investment Funds, Special Purpose Vehicles and Special Investment Vehicles. But also regulated banks can do shadow-banking activities for example when they do securitisation.
At the meeting, some participants advocated that shadow banking should be banned altogether. In relation to this, the NFU secretariat pointed out that it does not make sense to first discussing definitions without coming to a conclusion and then arguing for banning the whole sector. If we don’t know what we are talking about, how can we be so sure that it should be banned?
The outcome of the meeting was that Finance Watch will draft a report of the meeting, trying to define what shadow banking is, how it works, how it is linked to regular banks and the economy as a whole and how it can be regulated. Finance Watch will also assess and draft a reply to the Green Paper on shadow banking by the Commission, and invited its members to contribute to the work. The
deadline for replying to the Green Paper is 1 June 2012.