Sven Giegold

Shadow banking: Disappointing money market proposals fall far short of recommended regulation

The European Commission yesterday presented a communication on shadow banking, detailing proposals to regulate the myriad of financial sector activities that are outside the banking system and therefore not subject to banking rules. It also presented new legislation dealing with ‘money market funds’, which provide short-term financing for financial institutions. The Greens expressed disappointment at the proposals, which will fail to tackle the problems of the sector. Commenting on the plans, Green finance spokesperson Sven Giegold (MEP, Germany) stated:

“The Commission’s proposals are a serious disappointment given the urgent need to finally regulate the shadow banking sector, which has escaped regulation and played a central role in the financial crisis.

“There have been clear calls to prohibit money market funds, notably from the European Systemic Risk Board and the Financial Stability Board, if they guarantee the repurchase value of funds (constant net asset value funds). The Commission’s proposals fall far behind this, calling instead for a 3% capital buffer of the total amount of the funds. This falls far short of what would be necessary to prevent emergency firesales of funds, a practise that poured petrol on the fire of the financial crisis. Value losses in a crisis will clearly be significantly higher than 3%, meaning money market funds will continue to exacerbate future crises. Worse, the finance industry lobby has succeeded in ensuring these insufficient proposals will be delayed, with a 3 years transition period.

Here you can find a comparison between the text as proposed by the Commission, an earlier draft that leaked in March and the recommendations by the ESRB and FSB:


Funds with Constant Net Asset Value (CNAV) (Art. 25)

Leak of draft Commission proposal (March 2013) Commission Proposal (4 September 2013) ESRB recommendations FSB recommendations

Article 25:

At least 3% NAV buffer as a condition to allow constant NAV per share

Article 30:

Each CNAV MMF shall establish and maintain a NAV buffer amounting at all times to at least 3% of the total value of the CNAV MMF’s assets.

Requires MMFs to have a fluctuating NAV, General use of fair valuation(recommendation A, p. 23) MMFs that offer stable or constant NAV should be converted into floating NAV where workable(recommendation 2.2, p. 3)
Article 26: Differences between the constant NAV and the NAV should be neutralized by using the buffer

Article 31:

The NAV buffer shall only be used in case of subscriptions and redemptions to equalise the difference between the constant NAV per unit or share and the NAV per unit or share.


The use of amortised cost accounting is strongly restricted to a limited number of predefined circumstances

(recommendation A p. 23 (2) )

Article 26

If the NAV remains for one month below the required 3% by 10 basis point, the CNAV should automatically convert into a MMF that is not allowed to use amortised cost

Article 33

When the NAV buffer has not been replenished and for one month the amount of the NAV buffer stays below the 3% referred to in Article 30(1) by 10 basis points the MMF shall automatically cease to be a CNAV MMF and be prohibited from using the amortised cost or rounding methods.

Article 43 3. c)

Transition Period:

3% of the total value of the CNAV MMF’s assets, within three years from the

date of entry into force of this Regulation



FSB recommendation:

ESRB recommendation:

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