On 19th March the European Banking Authority (EBA) issued a
consultation paper which sets out its approach to limiting
exposures from banks to the shadow banking sector, proposing that
the large exposures regime be used to restrict exposures, in
addition to existing Pillar II requirements.
Regulators have recommended the imposition of sectoral large
exposure (LE) limits on several occasions in recent decades,
although these have never been formally implemented in EU
legislation. Instead under Basel 2, Concentration Risk became a
component of the Pillar 2 regime, enabling regulators to impose
additional capital requirements on those firms which regulators
deem to have inappropriate balance sheet
concentrations. The Guidelines in the consultation
paper (CP) represent the EU's first stage in implementing the
FSB's
policy framework for mitigating the risk of banks'
interactions with shadow banks, as one of their five key areas to
strengthen oversight and regulation
