The European Commission has, arguably, tightened the noose around the neck of shadow banking by publishing its communication on the sector and in presenting its proposal for regulation of money market funds (MMFs).
Is that really true? If so, is it fair? Sensible? Reasonable? The starting point in the debate is the term “shadow banking” itself. Even the Commission accepts that it has become emotionally loaded, but notes: “At this stage, it is very difficult to introduce alternative terminology, since this is by now a well established term in the international debate". Is shadow banking the ultimate demon, or could it be the saviour of the EU economy? (...)
I have proposed a plan for a temporary eurobill fund that would be the only issuer in the eurozone of Treasury bills with a maturity of two years or less. The fund would have a pro rata guarantee from all the eligible eurozone states – like that of the ECB and the European Stability Mechanism – so it would be the safest and most liquid short-term paper in the EU. This plan is now receiving serious consideration by a European Commission expert group.
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