The European Systemic Risk Board (ESRB) has published its second EU Shadow Banking Monitor which presents an annual overview of developments in the EU shadow banking system, with a focus on identifying risks to financial stability.

The report presents metrics and analysis for monitoring shadow banking risks and informs discussions at the EU level. It complements initiatives at the global level, such as the Financial Stability Board’s Global Shadow Banking Monitoring Report, by providing an EU-wide view of shadow banking entities and activities.

Key messages in the report include:

• the broad measure of shadow banking in the EU, comprising total assets of investment funds, including money market funds (MMFs), and other financial institutions, amounted to €40 trillion at the end of Q4 2016;
• growth in broad shadow banking assets slowed markedly in 2016;
• wholesale funding provided by entities engaged in shadow banking, including money debt securities held by investment funds and MMFs plus total assets of financial vehicle corporations, continued to decline in 2016, although at a slower pace than in previous years;
• the increasing size of the EU investment fund sector as a proportion of the financial system, coupled with the liquidity transformation and leverage present in some investment funds’ business models, can amplify financial stability risks; and
• the build-up of synthetic leverage by non-bank financial institutions and the use of securities financing transactions can facilitate credit growth and maturity and liquidity transformation outside the banking system.

View ESRB publishes second EU shadow banking monitor, 29 May 2017