Erkki Liikanen, Governor of the Bank of Finland and chairman of the high-level group established in 2012 to examine possible reforms to the structure of the EU’s banking sector, suggested that organisations that carry out banking activities but are not banks may need to be regulated like traditional banks following a significant increase of such activities.
This would allow for regulators to shine a light on the activities of the so-called “shadow banking”, comprising money market funds, hedge funds and firms involved in securities lending and repurchase markets.
Stressing the risk that tighter banking regulation could lead to growth in unregulated shadow banking, Mr. Liikanen said that authorities should consider taking preemptive measures lest marketsstart expecting bailouts of shadow banks with public money. Currently on the table for discussion are proposals to designate certain institutions as being systemically-important and to such financial institutions currently operating in the shadow banking sector to regulation and supervision.