April 19, 2024
European Banking Authority's New Focus
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EBA Expands Scrutiny on NBFIs and Cryptocurrency Impact on EU Banks

The European Banking Authority (EBA), responsible for stress testing EU banks, aims to enhance its assessment of non-bank financial institutions (NBFIs), including cryptocurrency-related entities, and their potential impact on lenders. The EBA Chair, José Manuel Campa, stressed the necessity to delve deeper into the interconnectedness between banks and other financial entities, stating, “We should be doing more, and we are going to be doing more. We need to have an understanding of the whole underlying chain in NBFIs.”

NBFIs reportedly hold approximately $219 trillion, or nearly half of the world’s financial assets. The EBA has already taken measures to address the potential strain caused by cryptocurrencies on the system. In November, it released preliminary regulations on liquidity and capital requirements for stablecoin issuers under the EU‘s Markets in Crypto Assets (MiCA) regulation. Additionally, proposed rules aim to scrutinize individuals holding stakes exceeding 10% in crypto companies for convictions or sanctions and urge crypto firms to monitor customers using privacy coins or self-hosted wallets to detect potential money laundering activities.

Campa highlighted that the EBA conducts stress tests on European lenders biennially and evaluates banks’ exposure to non-bank entities. The current initiative involves collaborating with the European Systemic Risk Board and Financial Stability Board to comprehend the potential repercussions of a “shadow banking shock” on the broader financial system.

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