José Manuel Campa, the EBA chair, emphasized the necessity to “dig deeper into the links between banks and other financial firms” due to concerns over contagion. The move is prompted by a need for a comprehensive understanding of the underlying chain in NBFIs.

Scope of Investigation

José Manuel Campa stated that there is a pressing need to understand the comprehensive chain of links within NBFIs. The move comes in response to worries about potential systemic risks, particularly as NBFIs collectively hold approximately $219 trillion, nearly half of the world’s financial assets.

EBA’s Prior Actions

Previously, the EBA took steps to address crypto’s role in financial stress. Draft rules were published in November, aligning with the EU’s Markets in Crypto Assets (MiCA) regulation, covering liquidity and capital requirements for stablecoin issuers. Additionally, proposed rules recommend vetting individuals with over 10% stakes in crypto companies for convictions or sanctions.

Collaboration for Systemic Understanding

The EBA plans to collaborate with the European Systemic Risk Board and Financial Stability Board. This collaboration aims to comprehend the repercussions of a “shadow banking shock” on the broader financial system.

Biennial Stress Tests and Ongoing Assessment

The EBA, known for its biennial stress tests on European lenders, will extend its assessments to include the impact of a “shadow banking shock.” These evaluations will involve working closely with relevant financial institutions to ensure a comprehensive understanding of potential systemic risks.

The EBA’s heightened scrutiny reflects a proactive approach to safeguarding EU banks from potential risks associated with their connections to NBFIs, particularly in the dynamic landscape of cryptocurrency entities.