Germany's fund trade body has criticised the European Commission's consultation on the shadow banking system, as taking too broad a definition of the non-banking ‘shadow' sector.
Germany’s fund trade body has criticised the European Commission’s consultation on the shadow banking system, as taking too broad a definition of the non-banking ‘shadow’ sector.
The Bundesverband Investment und Asset Management said the oversight of unregulated financial instruments and institutions was overdue, but BVI head Thomas Richter (pictured) said his organisation could not understand why investment funds had been mentioned in the EC’s Green Paper, which outlines the Commission’s views.
The Paper is the EC’s consultation on the topic of shadow banking, and a contribution to the Financial Stability Board’s attempts to develop recommendations for the area.
In 2010 the FSB estimated shadow banking assets at around €46trn, more than double the €21trn in 2002.
The more recent figure represented 25% to 30% of the total financial system, and half the size of bank assets, the EC said.
“In Europe, the proportion of these other financial intermediaries’ assets is lower than the global average – 13% in UK, and 5% in Germany, for example, compared to an estimated 35% to 40% in the US – however, according to FSB estimates, the share of these assets in Europe has sharply increased in recent years, while it is falling elsewhere.
“Shadow banking is therefore a growing concern for Europe’s financial system,” the EC said.
It specifically singled out “money market funds and other types of investment funds or products with deposit-like characteristics [and] investment funds that provide credit or are leveraged, including ETFs and hedge funds” as parts of the shadow banking system.
However, the BVI’s Richter said: “The EC particularly wants to regulate those vehicles that…are leveraged through the taking on of credit, or which would threaten the stability of the financial system in case of massive returns [of capital]. All of this is not the case for ETFs and money market funds mentioned in the Green Book.
“ETFs are underpinned by the same strict regulatory rules as traditional, actively managed funds. Our industry certainly cannot complain about a lack of regulation.”
Plans to regulate shadow banking have attracted criticism from German trade bodies before, with the Bundesverband Alternative Investments saying last November credit hedge funds should not be defined as belonging to the shadow banking system.