European Union regulators, concerned about attempts to evade a clamp-down on excessive risk taking, will weigh tougher rules for money market funds and other so- called shadow banks, according to an EU official familiar with the proposal.
Michel Barnier, the region’s financial services chief, will publish draft plans for regulating shadow banks next week and may seek to have new rules in place by the start of 2013, according to the official who declined to be identified because the talks are private.
Options being considered by the EU include extending capital requirements for lenders and insurers to shadow banks, or forcing them to comply with oversight rules that were originally intended for hedge funds, the person said.
The Group of 20 nations has urged regulators to rein in lenders that minimize the amount of capital they need to hold by using shadow banks to shift risks off their balance sheets. In addition to money market funds, the EU measures may target securitizations, repurchase agreements and exchange-traded funds, according to the EU’s website.
The Financial Stability Board, which brings together regulators, central bankers and finance ministry officials from G-20 nations, said last year that “bank-sponsored shadow banking entities” may create “an opportunity for regulatory arbitrage.”
Barnier will seek views on the proposals, which are set to be adopted on March 13, before deciding how to proceed, according to the official.
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