ESRB Aims for EU Shadow Banking Proposals in Early 2013

The European Systemic Risk Board, a group of central bankers and other regulators charged with monitoring market threats, aims to recommend shadow banking oversight changes in early 2013, European Union documents show.

The ESRB wants to mitigate systemic risk associated with shadow banking, according to the papers prepared in advance of a Sept. 14-15 meeting of officials in Cyprus. The panel intends to make policy recommendations on ways regulators can manage the overall health of the financial system and prevent firms from collapsing and triggering contagion.

“Enhanced transparency of certain shadow banking activities is needed to further monitor the sector, for example in the areas of securities lending and repos and other shadow banking entities,” the documents said, referring to repurchase agreements and other financial products. Non-bank financial companies also should not be able to circumvent supervision by switching regulators, according to the papers.

Finance ministers and central bankers will consider a range of regulatory issues when they meet in Cyprus in their first gathering since the European Central Bank announced its plan for working with the euro area’s firewall. This week the Brussels- based European Commission announced its plan for creating a common bank supervisor, which must be operational for the rescue funds to be able to lend directly to banks.

At their meeting in Cyprus, officials will also hear a presentation from Bank of Finland GovernorErkki Liikanen, who has been asked by EU Financial Services Commissioner Michel Barnier to lead a group considering bank structures.

The ESRB is a group chaired by ECB President Mario Draghi and hosted at the central bank’s headquarters in Frankfurt, with Bank of England Governor Mervyn King as his deputy.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net;

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; James Hertling at jhertling@bloomberg.net;

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