Money-Market Funds May Face Regulation in EU Shadow Bank Plan

The European Commission will call for legislation on money-market mutual funds and securities lending agreements as part of a push to regulate so-called shadow banking.

Michel Barnier, the EU’s financial services chief, intends to propose a plan on shadow banking in the spring, Stefaan De Rynck, a spokesman for Barnier, said in an e-mail.

“The overall objective is to make sure that our new regulations do not result in pushing activities to the world of shadow banking,” De Rynck said. “To reach this goal, we will no doubt come forward with new legal initiatives in the next year on issues such as money market funds and securities lending.”

While watchdogs have reined in excessive risk-taking by banks in the wake of the collapse of Lehman Brothers Holdings Inc. in 2008, they are concerned that lenders might use shadow banking to evade new rules on capital and liquidity. The Financial Stability Board has estimated that global shadow-banking activities were worth about $60 trillion in 2010, as much as 30 percent of the total financial system.

Supervisors classify shadow-banking activities as those that allow banks to carry out business off balance sheets, as well as those which allow investors to bypass lenders and the functions they traditionally fulfill on the markets.

The FSB, which brings together central bankers, regulators and finance ministry officials from the Group of 20 nations, has said that it will publish draft recommendations for regulating shadow banks, with a final version to come by September 2013

Barnier’s proposals must be approved by governments and by the European Parliament before they can take effect.

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