ESRB publishes second EU Shadow Banking Monitor

The European Systemic Risk Board (ESRB) has today published the second “EU Shadow Banking Monitor”, which presents an overview of developments in the European shadow banking system to identify risks to financial stability. This is the second issue in an annual series that will contribute to the monitoring of a part of the financial system that has experienced significant growth in recent years.

The assessment presented in this year’s report shows that the growth in broad EU shadow banking assets slowed markedly in 2016. In addition, the report highlights several risks and vulnerabilities which need to be monitored in the EU shadow banking system including:

• Liquidity risk and risks associated with leverage among some types of investment funds (e.g. investment funds which invest in less liquid markets while offering daily redeemable shares or which are highly leveraged);
• Interconnectedness and contagion risk across sectors and within the shadow banking system, including domestic and cross-border linkages;
• Procyclicality, leverage and liquidity risk created through the use of derivatives and securities financing transactions;
• Vulnerabilities in some parts of the other financial institutions sector, where significant data gaps prevent a definitive risk assessment.

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