September 10, 2018

ESRB published the annual EU Shadow Banking Monitor, which covers data up to the end of 2017. The report considers a range of risks and vulnerabilities, including those related to interconnectedness, liquidity, and leverage. The report reveals that, while little changed in 2017, the shadow banking system now accounts for nearly 40% of the EU financial system.

These risks and vulnerabilities are assessed using an entity-based monitoring framework, which considers both, investment funds and other financial institutions, such as financial vehicle corporations, security and derivative dealers, and financial corporations engaged in lending. The analysis is complemented by an activity-based assessment considering risks and vulnerabilities in securities financing transactions and derivatives markets, which are used across entities and where risks can arise from the use and reuse of financial collateral. The report identifies several key risks and vulnerabilities in the EU shadow banking system:

  • Liquidity risk and risks associated with leverage among some types of investment funds
  • Interconnectedness and the risk of contagion across sectors and within the shadow banking system, including domestic and cross-border linkages
  • Procyclicality, leverage, and liquidity risk created through the use of derivatives and securities financing transactions
  • Vulnerabilities in some parts of the other financial institution sector, where significant data gaps prevent a comprehensive risk assessment


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Keywords: Europe, EU, Banking, Securities, Systemic Risk, Shadow Banking, Liquidity Risk, Leverage, Procyclicality, ESRB