EU Regulators to Probe Links Between Banks and NBFIs
European regulators are set to increase their scrutiny on the connections between banks and non-bank financial institutions (NBFIs), including cryptocurrency groups. The concern is that potential risks and contagion from NBFIs could impact the banking industry. The European Banking Authority (EBA) will be working with the European Systemic Risk Board and the Financial Stability Board to gain a better understanding of how shadow banking shocks affect the overall financial system.
The Importance of Investigating NBFIs
Data from the Financial Stability Board reveals that NBFIs hold nearly half of the world’s financial assets, amounting to around $218 trillion. Given this significant amount, it is crucial to examine the risks posed by these institutions to banks. The EBA is already assessing the exposure of banks’ balance sheets to non-banks, including loans.
Focusing on Indirect Links to Banks
One area of investigation includes analyzing whether banks could be affected by a sudden decline in the value of assets held by NBFIs, such as treasuries or real estate. In November, Andrea Enria, the chief supervisor of the European Central Bank, highlighted a loophole in EU rules that allows banks to bypass certain safeguards against risks associated with cryptocurrencies. It is essential to address this loophole promptly.
Hot Take: EU Regulators’ Probe Could Impact Crypto Growth
The European regulators’ investigation into the links between banks and NBFIs, including cryptocurrency groups, has raised concerns about potential limitations on crypto growth in the region. As crypto exchanges and companies expand into the EU market, increased scrutiny from regulators may hinder their operations. It remains to be seen how these investigations will unfold and what implications they will have for the crypto industry in Europe.
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