Response to consultation on Guidelines on limits on exposures to shadow banking

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2. Do you agree with the approach the EBA has proposed for the purposes of establishing effective processes and control mechanisms? If not, please explain why and present possible alternatives.

We do not have a response to this question.

3. Do you agree with the approach the EBA has proposed for the purposes of establishing appropriate oversight arrangements? If not, please explain why and present possible alternatives.

We do not have a response to this question.

4.Do you agree with the approaches the EBA has proposed for the purposes of establishing aggregate and individual limits? If not, please explain why and present possible alternatives.

We do not have a response to this question.

5. Do you agree with the fallback approach the EBA has proposed, including the cases in whichit should apply? If not, please explain why and present possible alternatives. Do you think that Option 2 is preferable to Option 1 for the fallback approach? If so, why? In particular: Do you believe that Option 2 provides more incentives to gather information about exposures than Option 1? Do you believe that Option 2 can be more conservative than Option 1? If so, when? Do you see some practical

We do not have a response to this question.

6. Taking into account, in particular, the fact that the 25% limit is consistent with the currentlimit in the large exposures framework, do you agree it is an adequate limit for the fallback approach? If not, why? What would the impact of such a limit be in the case of Option 1? And in the case of Option 2?

The proposed capture of a very broad and diverse range of entities that do not, in fact, meet the EBA’s own criteria within its “shadow banking” universe matters a great deal once the consequences are taken into account. The EBA proposal on exposures to shadow banking entities goes much further than the existing provisions for managing credit concentration risk in the context of large loans under CRD IV. Those provisions require only the largest loans to be taken into account, whereas the shadow banking proposals would include every loan in calculating the exposure limit (at least under the fallback approach). The 25% limit proposed under the fallback approach itself strikes us as a very low limit, representing just 1/32 of the overall limit for large loans under CRD II and potentially no more than a single exposure under Article 395(1) CRR. If the EBA defines its “shadow banking” universe as broadly as it proposes, the effect could be to place serious constraints on the availability of sensibly priced credit for large parts of the real economy, many of which, as elaborated in the rest of this submission, are not even engaged in credit intermediation of any kind.

In particular, if those real estate AIFs that use leverage cannot obtain appropriately priced finance for their activities, major stakeholders could disappear from the market. We understand that a study of the interactions between the different kinds of vehicles in the German real estate market shows strong negative correlations, demonstrating the importance of diversity. Measures that would have the effect of reducing that diversity in real estate vehicles could therefore have a material negative impact on the German real estate market as a whole. Given that real estate represents around 20% of Germany’s GDP, the impact on the economy as a whole could also be significant. The same logic would apply across the EU.

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Name of organisation

Commercial Real Estate Finance Council (CREFC) Europe