EC shadow banking plan falls short: Giegold MEP

The Green Party spokesman for finance and German MEP said the proposals to regulate shadow banking and money market funds fell “far short of recommendation regulation” and would fail to tackle the problems within the sector.

The proposals, announced last week by the Commission, are designed to control the use of money market funds, which supply the financial markets with short-term money.

The funds will be forced to create new cash buffers under the proposals to avert potential runs when market conditions are stressed, and are part of a global regulatory push to impose greater controls on non-bank lending markets.

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However, Mr Giegold said: “These proposals are a serious disappointment given the urgent need to finally regulate the shadow banking sector, which has escaped regulation and played a central role in the financial crisis.

“There have been clear calls to prohibit money market funds, notably from the European Systemic Risk Board and the Financial Stability Board. The Commission’s proposals fall far behind this, calling instead for a 3 per cent capital buffer of the total amount of the funds.”

He added that these proposals fall far short of what would be necessary to prevent emergency fire sales of funds.

Adviser view

Carl Melvin, managing director of Renfrewshire-based Affluent Financial Planning, agreed with Mr Giegold’s assessment of the proposals. He said: “Increasing regulatory capital alone is not enough: we need to engender a culture of better behaviour, which punishes wrongdoing.

“I do not think these proposals will make it any safer for investors – it will mean that the shadow banking sector is still risky, and actually could affect profitability and growth.”