Banks across Europe could be forced to hold lower levels of capital under fresh European Union (EU) law in the coming months.
That is if a draft paper from the EU becomes legislation, as this has suggested that shadow banking could play a vital role in the region's economic recovery as it continues to struggle with the impact of its debt crisis.
The consultation document obtained by Reuters states that lenders may have to cap their exposure to risk in this sector - which is worth around $60 trillion - as even though repurchase agreements and the like are "potentially useful", they also come with certain risks.
According to the paper, the ongoing financial issues being faced by much of the continent represent a clear signal that shadow banking can pose a threat to stability if it fails.
Earlier this week (16 February), Moody's announced that 114 banks across Europe are in danger of having their credit ratings cut in the near future.
By Gary Cooper
