By Simon Miller

The European Commission has launched a consultation over the £29trn shadow banking sector.

Despite believing that the shadow banking sector performs important functions in the financial system, through creating additional sources of funding for example, the EC also believes that it can pose potential threats to long term financial stability "because unknown sources of risk acccumulate in the financial sector and there are potential spill-over effects from the shadow banking sector to the regular banking sector".

Speaking at the launch of the green paper, EU Commissioner Michel Barnier, commented: " What we do not want is for financial activities and entities to circumvent existing and foreseen rules, allowing new sources of risk to accumulate in the financial sector. That is why we need to better understand what shadow banking actually is and does, and what regulation and supervision may be appropriate."

The Green Paper can be found here; Stakeholders are invited to respond to the consultation before 1 June 2012 while a conference on shadow banking will take place in Brussels on 27 April.

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