LMA responds to the European Banking Authority's (EBA) Consultation Paper: Draft Guidelines on limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework25 June 2015
The Loan Market Association (LMA) continues to work with our members to ensure that any new or revised regulation does not adversely impact the syndicated loan market and those participating in it.
The LMA has responded to the EBA's Consultation Paper, which has as its objective to examine the issues raised by the draft EBA Guidelines, which propose criteria on setting limits on European Union institutions' exposures to shadow banking entities. With respect to the proposed definition of shadow banking entities, the LMA is of the view that banks, non-banks and corporates will be negatively impacted by the unintended consequences of this regulation as currently drafted.
Commenting specifically on the definition of shadow banking entities, Nicholas Voisey, LMA Director, said:
"We do not consider the definition [of shadow banking entities], as currently drafted, is workable in practice, particularly because corporates, borrowing through their Treasury companies could be captured. This reduces these entities' access to credit with an ultimate cost to employment and growth. "
Furthermore, banks will be required to make a determination on a borrower-by-borrower basis as to whether that borrower falls within the definition of a shadow bank. Assuming that it will not be permissible simply to accept a borrower's undertaking that it is not a shadow bank, it will be necessary for each bank to establish a set of metrics to classify borrowers.