Although the 2008 crisis in financial markets centred on the banking sector, it generated a broader concern amongst regulators and policymakers about potential sources of risk in the global financial system. The Financial Stability Board (FSB) has defined shadow banking as “credit intermediation involving entities and activities (fully or partially) outside the regular banking system”.
Interest in this sector has grown during the years following the crisis, particularly at the international level. This was driven initially by concerns that tighter controls on the traditional banking system (particularly higher capital charges) would incentivise a growth in the non-bank sector and, more recently, by recognition that the scale of bank deleveraging will require economies to look outside banks to secure the finance necessary for growth.
Increasingly policymakers discuss ‘market-based finance’ or ‘ non-bank lending’, rather than the initial term of 'shadow banking', reflecting the growing importance of alternatives to banks. At both EU and international level, however, work continues to assess the role such sources of finance can – and should – play, and which rules, including of a macroprudential nature, should apply to them. The current focus for closed-ended funds such as private equity is on rules related to leverage - and in particular the IOSCO work on developing a consistent assessment of global leverage.
Invest Europe Position
Policymakers at global and at EU level have recognised the difficulties in defining ‘shadow banking’, and initial attempts to use a definition based on types of entity have been replaced by a more productive focus on activities and their specific features.
Invest Europe supports this broad approach as it avoids any inadvertent definition of a broad range of funds – such as private equity funds – as ‘shadow banks’.
Both the European Commission’s September 2013 Communication on Shadow Banking and the FSB have recognised that even if a particular activity is to be categorised as ‘shadow banking’ its existing regulation and supervision may well be appropriate for the risk that is posed.
IOSCO Report: Leverage - Consultation Paper >
December 2018, IOSCO
AIC-Invest Europe Response to FSB Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities >
September 2016, Invest Europe-PAE
EVCA-PAE Response to EBA Guidelines on Shadow Banking >
June 2015, EVCA-PAE
Global Shadow Banking Stability Report 2014 >
October 2014, Financial Stability Board (FSB)
Global Financial Stability Report 2013 >
October 2013, International Monetary Fund
Communication on Shadow Banking >
September 2013, European Commission
Strengthening Oversight and Regulation of Shadow Banking >
An Overview of Policy Recommendations
August 2013, Financial Stability Board (FSB)