According to the Financial Times, the European Banking Authority (EBA), the body in charge of conducting stress tests on banks inside the European Union, would go above and beyond in attempting to forecast the effects of strains on non-bank financial institutions (NBFIs), especially those associated with cryptocurrencies, on lenders.
José Manuel Campa, the chair of the European Bank of Automotive Manufacturers (EBA), stated in an interview with the Financial Times that concerns about contagion have led to the need to “dig deeper into the links between banks and other financial firms.” “We intend to increase the amount of work we undertake, as we should. We must comprehend the NBFIs’ entire underlying chain. NBFIs hold almost $219 trillion, or about half of the global financial system, according to the FT analysis
To address the potential role that cryptocurrency may play in straining the system, the EBA has already taken some measures. It released draft regulations in November that would have required stablecoin issuers to have capital and liquidity in accordance with the EU’s new Markets in Crypto Assets (MiCA) law. In order to detect possible money laundering, it has also directed cryptocurrency companies to keep an eye out for consumers utilising privacy coins or self-hosted wallets. These proposed regulations would require everyone having a shareholding in a crypto company of more than 10% to be checked for convictions or sanctions.
According to Campa, the EBA evaluates the banks’ balance sheet exposure to non-banks and performs stress tests on European lenders every two years. Working with the Financial Stability Board and the European Systemic Risk Board to comprehend the effects of a “shadow banking shock” on the larger system is the most recent step, according to the study.