The European Fee is launching a session this 12 months to establish the potential for systemic dangers amongst non-bank monetary intermediaries.
In a report back to the European parliament and the council, the physique mentioned that “a speedy enlargement of non-bank monetary intermediaries (NBFIs) also can 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 mentioned. “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 financial system.”
The report mentioned that the Monetary Stability Board and the European Systemic Threat Board have recognized three structural vulnerabilities that contribute to the build-up of systemic danger, and that are solely partially coated by macroprudential insurance policies as we speak.
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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 mentioned might create hidden danger amplifiers and switch of danger 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 accumulate 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 mentioned. “This work will underpin and assist any coverage resolution that the 2024 2029 Fee might take on this space.
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“Due to this fact, the Fee plans to run a focused session on macroprudential insurance policies for NBFIs in 2024. The purpose might be to accumulate 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 mentioned that it’s going to additionally seek the advice of this 12 months on the assessment of the Securities Financing Transaction Regulation (SFTR). The SFTR goals at enhancing transparency on funding and lending transactions, to make sure higher monitoring of dangers ensuing from non-bank credit score intermediation.
