Regulatory divisions over reining in “shadow banking” were laid bare by a Brussels clampdown on money market funds that falls short of Franco-German demands for a “brutal” ban yet still riles the industry and goes beyond US proposals.
The European Commission proposal unveiled yesterday aims to tame a fund sector that lubricates financial markets with short-term money but worries regulators by offering banklike promises that are vulnerable to investor panics.
To address the funds’ systemic risks, Michel Barnier, the EU commissioner responsible for financial regulation, wants them to stockpile liquid assets and – when offering a guaranteed share price to investors – build capital buffers to avert runs.
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