According to the latest reports, it seems that the EU is set to investigate the links between banks and nonbank entities, including crypto companies. Check out the latest reports about this below.
EU to kick off massive investigations
European Union regulators are planning to investigate the relationship between banks and non-bank financial institutions (NBFIs). There are concerns that stress in the shadow banking sector might spread to the wider financial system.
According to a recent report by Financial Times, the European Banking Authority (EBA) chair, José Manuel Campa, has stated that regulators will increase their efforts to predict how banks would be affected by strains in NBFIs.
NBFIs, which include hedge funds, private capital firms, and crypto groups, now hold almost half of the world’s financial assets, equivalent to $218 trillion.
This sector has become a financial giant as regulations implemented after the 2008 financial crisis have encouraged activities beyond traditional banking, and non-regulated areas such as crypto have grown.
According to Campa, the European Banking Authority (EBA) plans to work together with the European Systemic Risk Board (ESRB), which is responsible for monitoring the financial stability of the eurozone, and the Financial Stability Board (FSB), a global financial system watchdog, to assess the possible financial contagion risks that might arise from a shock to the shadow banking sector.
“We need to have an understanding of the whole underlying chain in NBFIs.”
The European Banking Authority (EBA) is currently investigating how banks’ balance sheets are exposed to Non-Banking Financial Institutions (NBFIs), including loans.
However, José Manuel Campa, the EBA chairperson, believes that there are also indirect links that need to be taken into account.
These include the risks that banks face when the value of assets that are popular with NBFIs decreases, which may lead to non-banking firms selling these assets.
Campa suggests that regulators should establish “significant minimum areas” of reporting, which will allow them to access transparent data about the crucial exposures of non-banks.
This will help to identify potential risks and enable regulators to take appropriate measures to mitigate them.
“The first step in this situation is always getting information; it’s an obscure sector where the quality of data is not homogenous.”
