The European Commission on Wednesday adopted a communication on shadow banking and proposed new rules for money market funds (MMFs).
The communication is a follow-up to last year's Green Paper on Shadow Banking. It summarizes the work undertaken so far by the Commission and sets out possible further actions in this important area.
The first of these further actions - the proposed new rules for money market funds - aims to ensure that MMFs can better withstand redemption pressure in stressed market conditions by enhancing their liquidity profile and stability.
Internal Market and Services Commissioner Michel Barnier said: "We have regulated banks and markets comprehensively. We now need to address the risks posed by the shadow banking system. It plays an important role in financing the real economy and we need to ensure that it is transparent and that the benefits achieved by strengthening certain financial entities and markets are not diminished by the risks moving to less highly regulated sectors."
MMF is a mutual fund that invests in short-term debt such as money market instruments issued by banks, governments or corporations.
The Communication sets out the issues at stake in relation to the shadow banking system and the measures already taken to deal with the risks related to shadow banking such as the rules governing hedge fund activity and reinforcing the relationship between banks and unregulated actors (the provisions related to securitisation exposures in the revised Capital Requirements legislation).
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