04 September 2013

Sven Giegold: Shadow banking - Michel Barnier is risking his reputation

Translated from the German

The new rules for regulation of money market funds are part of a globally coordinated approach to ensure that the more stringent capital and liquidity rules in the banking sector cannot be circumvented by a growing unregulated sector of so-called shadow banks. 

Sven Giegold said: "With the disappointing proposals for the regulation of shadow banking, Internal Market Commissioner Michel Barnier is risking his reputation as a consistent regulator. In December 2012, the European systemic risk board (ESRB) recommended a ban on money market funds that guarantee a fixed redemption value of their fund shares (Constant Net Asset Value (CNAV) funds) and on 29 August 2013, this was followed by similar demands by the global Financial Stability Board (FSB).

"Yet the EU Commission's proposal remains far behind these international demands, only requiring the funds to assure a capital buffer of 3 per cent of their total assets. This, however, is not nearly sufficient to prevent sales like the CNAV distress sales which fuelled the euro crisis. In a new serious crisis, losses are likely to be greater than 3 per cent, and again, those funds would add fuel to the flames. 

"Furthermore, the draft directive has already been in the drawers of the EU Commission for over six months. During this time, the financial lobby has not been idle: For the 3 per cent capital buffer, there is even a generous transition period of three years. Overall, the European Commission seems to consider that the business interests of the funds based in the tax havens Luxembourg and Ireland is more important than the public interest of financial stability."

Full statement (in German)

© Sven Giegold