Regulators worry that as mainstream lenders are more tightly regulated, risky activities will shift to the shadow banking sector. They are therefore looking at what steps should be taken to contain risks. Pearson said there was already evidence that as banks focus on building up their capital buffers, hedge funds and other unregulated firms were offering liquidity to markets.
The European Commission has the sole right to propose EU laws and had aired possible curbs, but Pearson downplayed any imminent proposals to ban or restrict shadow banking activities. "The priority at this point is transparency, transparency, transparency", he told a House of Lords economics committee. "Regulators are quite aware not to squeeze out an important source of liquidity."
The emphasis will be on collecting data to find out what was going on before jumping to regulatory conclusions, he said. The Commission is also running out of time to propose major, controversial measures as the European Parliament goes to the polls next May and a new line up of commissioners will be appointed in October.
Pearson said there would be a legislative proposal on bank structural reform shortly, but in effect dismissed the extreme option of banks having to fully hive off risky activities from retail deposit-taking arms.
Britain, France and Germany have already announced plans for curbs on the level of trading risks taken by banks, pre-empting the Commission.
Full article
Pearson video at House of Lords
© Reuters
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
