The European Fee is launching a session this 12 months to establish the opportunity of systemic dangers amongst non-bank monetary intermediaries.
In a report back to the European parliament and the council, the physique stated that “a fast enlargement of non-bank monetary intermediaries (NBFIs) may also generate new dangers and challenges to monetary stability”.
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“The expansion of NBFIs has been accompanied by a rise within the riskiness of some asset portfolios, rising liquidity transformation and elevated leverage, pushed additionally by the ‘seek for yield’ throughout an prolonged interval of adverse actual rates of interest,” the Fee stated. “The interconnectedness between banks and NBFIs has additionally steadily expanded and elevated the chance of contagion throughout the monetary sector, with the potential to have adverse spillover results on the economic system.”
The report stated that the Monetary Stability Board and the European Systemic Danger Board have recognized three structural vulnerabilities that contribute to the build-up of systemic threat, and that are solely partially coated by macroprudential insurance policies at this time.
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These are liquidity mismatches, the build-up of extreme leverage, and the interconnectedness amongst NBFIs and between NBFIs and banks, which it stated could create hidden threat amplifiers and switch of threat from the banking to the non-banking sectors.
“As credit score exercise and dangers shift more and more from the banking to the non-banking sectors, the Fee will gather additional proof on lacking instruments, potential gaps in current instruments to meet macroprudential targets and on the effectiveness and consistency of macroprudential insurance policies for NBFIs within the EU,” the report stated. “This work will underpin and help any coverage choice that the 2024 2029 Fee could take on this space.
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“Subsequently, the Fee plans to run a focused session on macroprudential insurance policies for NBFIs in 2024. The intention can be to gather additional insights into the enterprise fashions of key NBFIs and the interconnectedness amongst them and between banks and NBFIs, and to establish gaps within the macroprudential framework and different components which will contribute to the build-up of systemic dangers in non-bank monetary intermediation.”
The Fee stated that it’ll additionally seek the advice of this 12 months on the evaluate of the Securities Financing Transaction Regulation (SFTR). The SFTR goals at bettering transparency on funding and lending transactions, to make sure higher monitoring of dangers ensuing from non-bank credit score intermediation.