EU consults on regulating shadow banking

The European Union (EU) has launched a green paper on regulating the non-bank credit market or “shadow banking” sector.

The “potential threats to long-term financial stability” the sector poses to the financial system, has been highlighted.

Michel Barnier, internal market and services commissioner, says: “What we do not want is for financial activities and entities to circumvent existing and foreseen rules, allowing new sources of risk to accumulate in the financial sector.

“That is why we need to better understand what shadow banking actually is and does, and what regulation and supervision may be appropriate, and at what level. We must shed light on all parts of the financial sector.”

The move comes shortly after Financial Services Authority (FSA) chairman Adair Turner called for the sector to be regulated.