The Euro isn’t as strong as it used to be, but the forces in power are cracking down in inefficiency. The European Union is putting new restrictions on a phenomenon known as shadow banking. This crackdown on shadow banking will affect hedge funds, security lending, and repurchase markets that lend out money in a sneaky fashion.
In the current market, companies occasionally need fast cash. Where do they turn? A group of shady lenders try to bypass regular banking restrictions and get money out fast to the buyer. It was dubbed shadow banking, and it was a huge problem in the 2007-2008 European financial crisis.
What is the solution to shadow banking? Experts suggest that having a three percent buffer would make this strategy obsolete. The lenders would not be able to compete with the new market structure. Money markets would suffer, and normality would begin to be restored.
Other people in the industry suggest that a three percent buffer would destroy the marketplace. In all fairness, three percent can sometimes be a ton of money. Cash buffers, however, ensure that real money is being traded. The days of trading digital numbers are coming to a close. The market has learned from recent failures. Money is a tangible thing, and it needs to be treated that way. Shadow baking is irresponsible.
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