The European Banking Authority (EBA) has announced plans to investigate the interconnectedness of legacy banks with non-bank financial institutions (NBFIs). This move comes in collaboration with the European Systemic Risk Board (ESRB) and the Financial Stability Board (FSB), focusing on assessing hedge funds, private equity, and crypto platforms.
José Manuel Campa, the chair of EBA, shared the intention during an interview with the Financial Times on January 3. Campa emphasizes the need to trace the entire “underlying chain in NBFIs” to comprehend the potential for contagion between banking and non-banking financial institutions during stress situations. He stated, “We need to have an understanding of the whole underlying chain in NBFIs.”
Assessing Non-Bank Financial Institutions
Campa revealed that the EBA had already evaluated banks’ balance sheet exposures to non-banks, including loans. He pointed out that NBFIs constitute an “obscure sector” with a “not-homogenous” quality of available data.
The Financial Stability Board estimates the total value of assets held by NBFIs to be around $218 trillion, accounting for approximately 46% of total global assets. This surpasses the assets held by traditional banks, which stand at around $183 trillion.
EBA’s Previous Crypto Sector Guidelines
In November 2023, the EBA proposed new industry guidelines for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in the crypto sector. These guidelines include merging the AML/CFT criteria for payment service providers and crypto asset service providers (CASPs). Additionally, the EBA recommended obliging CASPs to enhance the interoperability of their protocols to “enable the transmission of information in a seamless and interoperable manner.”
As regulatory scrutiny on the interconnectedness between banks and NBFIs intensifies, market participants will be closely watching for further developments in this evolving landscape.