EBA Shadow Banking Limits

How will your firm be affected?

On the 14th of December 2015, the European Banking Authority (“EBA”) issued final guidelines for Limits on exposures to shadow banking entities, outlining how financial institutions are to manage limits on shadow banking exposures, effective from 1st January 2017.

As an indicator of how many banks could be affected, the EBA performed data analysis with an example shadow banking sector limit of 25%. Under this analysis, a third of banks were over the example limit, with large ‘Group 1’ banks having proportionally larger exposures to shadow banks. The definition of shadow banking entities has since been restricted.

The 65 banks surveyed by the EBA in Luxembourg, Germany, France and the United Kingdom had average shadow banking exposures of between 40% and 80% of eligible capital. Custodian banks and asset servicing institutions will be particularly upset by the lack of a custody-related services exemption in the final guidelines, as requested by practitioners in response to the EBA Consultation Paper.

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