Systemic risk of shadow banking remains with MMFs agreement
The Committee on Economic and Monetary Affairs (ECON) at the European Parliament has today adopted a compromise agreement from the trialogue on the regulation of money market funds (MMFs).
ECON committee member and GUE/NGL shadow rapporteur Fabio De Masi MEP said of the final text:
“Almost a decade has passed since the outbreak of the global financial crisis yet nothing has happened in the EU to regulate shadow banking. The compromise which has now been reached on regulation is good news for those who run MMFs. But advocates for better regulation of the shadow banking sector will be disappointed.”
“For more than a year after the Parliament had adopted its position, nothing happened. That’s because the Council under the presidencies of Luxembourg and the Netherlands had been dragging its feet,” he continued.
“The compromise reached in the trialogue weakens the Parliament’s position in fundamental ways. For instance, the sunset-clause on LVNAV (low-volatility net asset value) funds was struck down. As were stronger position limits for CNAV (constant net asset value) funds – which promise a fixed redemption value similar to a bank account – and the ban on investments in other MMFs which should have limited contagion risk,” De Masi said.
“Even the European Systemic Risk Board (ESRB) and its chairman Mario Draghi warned of the risk that CNAV funds pose to financial stability. These funds contributed significantly to the development of the financial crisis in the US.”
“This final agreement of the trialogue therefore fits the current trend to allow the resumption of financial speculation and gambling after a brief period of attempts to regulate banks and financial markets.”
“Overall, we need a strong regulation of money market funds and the shadow banking sector in addition to a genuine structural reform of banking – strictly separating investment banking from sound commercial banking,” he concluded.