The European Central Bank plans to boost oversight of trading in repurchase agreements by setting up a transactions database amid a push by regulators to rein in so-called shadow banking, a European Union document shows.
Michel Barnier, the EU’s financial services chief, raised the plan at a meeting of European Union finance ministers and central bankers in Nicosia, Cyprus, on Sept. 14-15, according to the document, whose authenticity was confirmed by an EU official. The database would cover the European market for repos. The official spoke on condition of anonymity because the talks are private.
Barnier told the meeting that he is working on regulations targeted at “key actors” in the shadow-banking system, in particular money-market mutual funds, according to the document.
Money-market mutual funds merit particular attention because of risks to their liquidity, Barnier told the meeting, adding that he was “disappointed” that the U.S. Securities and Exchange Commission had proved unable to agree on rules for the $2.6 trillion industry, according to the document.
Repurchase agreements are contracts in which one investor agrees to sell a security and then buy it back at a future date at a fixed price. They’re one of several shadow-banking activities targeted by regulators concerns that they may be used to evade a global clampdown on excessive risk-taking.
A bankruptcy examiner’s report found that Lehman Brothers’ Holdings Inc., the lender whose collapse in 2008 sparked the financial crisis, used so-called Repo 105 transactions to move as much as $50 billion temporarily off its balance sheet to convince investors it wasn’t carrying too much debt.
The Financial Stability Board has estimated that global shadow-banking activities were worth about $60 trillion in 2010, as much as 30 percent of the total financial system.
The European Commission, the 27-nation EU’s executive arm, plans to publish draft rules for shadow banks in November.
Barnier told the Nicosia meeting that the commission’s proposals would chime with work being done by international regulators and would include better oversight of the links between banks and shadow banking.
He also said that the commission would publish a draft law by the end of this year to boost protection of investors who trade securities across borders.
-- With assistance from Gabi Thesing in London. Editors: Patrick G. Henry, Peter Chapman
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