Shadow banks can thus become a source of systemic risk, especially when they are structured to perform bank-like functions like maturity and liquidity transformation and when they are highly interconnected with the regular banking system. From a financial stability perspective it is therefore important to closely monitor shadow banks’ activities and regulate them adequately.
The Bundesbank therefore supports the global regulatory initiative on shadow banking under the leadership of the Financial Stability Board (FSB). 4. European banking union  The recent establishment of a European banking union, which comprises the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), is an institutional milestone on the path that leads to greater financial stability in the euro area.