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The response highlights, however, the difficulty in the definition because as they note “many of the activities mentioned in the Commission’s definition (of shadow banking) are also performed by the traditional banking sector” because of their interconnectedness. Relatedly, UNI Europa Finance called for the definition to specifically differentiate shadow banking, ideally by showing that the “shadow banking system focus on a very specific function while banks combine the different functions.”



UNI Europa Finance emphasizes the need for transparency in order to ensure that the shadow banking instruments are properly understood, defined, monitored and regulated. It also allows for the monitoring of new instruments and legal set-ups as the financial sector innovates.



Fundamentally, UEF states that shadow banking, though potentially generating high profits in the short term, is ultimately detrimental to the real economy without strong regulation because its unregulated nature inherently creates enormous systemic risk. In this way, the goal is ultimately not to regulate shadow banking, but to “get shadow banking out of the shadow by delineating the very specific functionalities of each type of vehicle, making sure that they become transparent and regulated in a tailored/targeted way.



In regards to the supervisory methods, UNI Europa Finance agrees that the EU supervisors, the Commission, the ECB and other central banks must have an exchange of information, but argues that in order to be comprehensive there must be a global exchange of information and a convergence of supervisory practices. A suggestion to assist the international exchange of information would be to develop a common “taxonomy of shadow banking” or a methodology to group different kinds of shadow banking into common categories.



In regards to the general regulatory principles, UEF supports the high-level principles that the regulatory response is targeted, proportionate, forward-looking and adaptable, effective and subject to assessment and review. UEF, however, suggests two additional principles of 1) the activities and complexity of the shadow banking system should not be allowed to go beyond the means of the supervisory capacity and expertise. And 2) shadow banking must be regulated in a way that a level playing field with prudential banking is created, so that regulatory arbitrage is avoided.



For the full response see related files.