In March 2012, the European Commission planted a flag to mark its latest campaign of regulatory territorial expansion, publishing a consultation green paper on the 'shadow banking' sector. While recognising that it can be a useful part of the financial system, the paper warned of the risks of “high, hidden leverage”, “regulatory arbitrage” and “disorderly failures”.
The European Commission estimates the sector to be worth €46,000bn, and its participants seem to be rather eclectic, including money-market funds, special-purpose vehicles, asset-backed securities conduits, credit insurance undertakings, exchange-traded funds, repo markets and in fact anything that is “performing liquidity and/or maturity transformation without being regulated by a bank”.
