EBA Considers Reporting Requirements for Nonbank Financial Institutions

The European Banking Authority (EBA) is contemplating new reporting requirements for nonbank financial institutions, EBA Chairman Jose Manuel Campa announced on July 9. This move comes in response to the rapid growth of the “shadow banking” sector, which includes hedge funds, private credit providers, and insurers.

Campa highlighted the sector’s lack of transparency and potential risks to broader financial markets. “As we map, we will have difficulties identifying the information,” Campa stated, noting the absence of current regulatory reporting requirements.

In 2022, nonbank financial institutions accounted for nearly half of the world’s financial assets, totalling $218 trillion, according to the G20’s Financial Stability Board (FSB). Private credit lenders are becoming a significant source of financing for companies struggling to secure funding from traditional banks, providing an estimated $333 billion in loans last year, a 60% increase from 2021, according to the Alternative Credit Council (ACC).

The collapse of Archegos Capital Management in 2021, which caused substantial losses for Credit Suisse, underscored the sector’s potential threat to the broader financial system. Regulators are working to address these risks and are seeking international consensus on new rules.

The FSB is collecting data on nonbanks and their connections to regulated lenders, with findings expected later this year. The Bank of England has conducted its first sector-wide stress test and is advocating for new regulations.

European regulators are also examining the links between banks and nonbank financial institutions. In January, Campa expressed concerns about potential contagion in the financial system. In February, Bank of England Deputy Governor Sarah Breeden called for more research into nonbank lenders to prevent a potential credit crunch.

In the U.S., the Federal Deposit Insurance Corp. (FDIC) is increasing scrutiny of FinTechs and nonbank entities to understand and mitigate associated risks.