The European Central Bank (ECB) released key updates that underscore the urgency of adapting financial supervision to the growing cross-border realities of Europe’s capital markets. Recently, the ECB and the European Systemic Risk Board (ESRB) jointly issued a detailed report examining interconnections between banks and the non-bank financial intermediation (NBFI) sector.
One day later, a multi-author ECB blog post made a compelling case for shifting supervision of the largest asset managers from a purely national to a genuinely European framework.
Together, the documents signal a strategic push to close supervisory gaps, reduce fragmentation, and support the EU’s Savings and Investments Union (SIU) ambitions.
Europe’s asset management industry has expanded dramatically. Assets under management have nearly doubled over the past decade to exceed €20 trillion, growing roughly three times faster than the banking sector.
The market is highly concentrated: ten to fifteen major groups control more than half of euro-area fund assets, with funds domiciled predominantly in Ireland and Luxembourg serving investors across the entire bloc.
These hubs channel capital efficiently but also create structural vulnerabilities. Foreign investors own around 90 percent of the shares in Irish and Luxembourg-domiciled funds, while the funds themselves invest widely across Europe and beyond.
This deep integration means that liquidity stress or redemption waves can transmit rapidly across borders, as vividly demonstrated during the March 2020 market turmoil when central banks had to step in to contain spillovers.
The blog post argues that national supervision alone is no longer adequate for entities with such systemic, pan-European footprints.
Supervisors in a fund’s home country may miss risks that materialise elsewhere, while authorities in investor-heavy jurisdictions lack direct oversight.
To address these blind spots, the authors propose that the European Securities and Markets Authority (ESMA) coordinate formal supervisory colleges for the largest fifteen or so asset-management groups.
These colleges would bring together relevant national authorities, ensure consistent application of EU rules, and facilitate information exchange on cross-border exposures.
The approach would leave smaller, domestically oriented managers under national remit while focusing European resources where risks are most concentrated.
Complementary macroprudential tools would still be needed to tackle collective behaviours—such as correlated selling—that can amplify market stress even among smaller players.
The preceding day’s joint ECB-ESRB report complements this supervisory agenda by shining a light on direct linkages between banks and NBFIs.
Banks play three critical roles in their interactions with non-banks: providing liquidity, extending leverage, and acting as market makers.
These relationships, while economically valuable, create two primary channels of vulnerability.
First, banks rely on often short-term, homogeneous funding from NBFI entities; a sudden withdrawal during market stress could prove difficult to replace.
Second, banks’ lending to leveraged hedge funds and securities firms exposes them indirectly to the outcomes of those entities’ trading strategies.
Granular transaction data analysed in the report show these exposures are heavily concentrated among a handful of large euro-area global systemically important banks (G-SIBs).
While the analysis finds no acute threat to stability at present, the risk-bearing capacity of these G-SIBs remains essential for absorbing potential shocks and preventing amplification.
Both publications highlight persistent data gaps—particularly on cross-border and non-EU exposures—and call for improved information-sharing mechanisms.
Enhanced data access would allow supervisors to better map and monitor the intricate web connecting banks, asset managers, and other non-bank entities.
Collectively, the updates reinforce a clear policy direction: as Europe deepens its capital markets through the SIU, its supervisory architecture must evolve in tandem.
Aligning oversight of the largest asset managers with their actual geographic reach, while strengthening visibility into bank-NBFI interlinkages, would reduce fragmentation, level the playing field, and bolster resilience.
For investors, this promises lower costs and broader opportunities; for the financial system, it offers stronger safeguards against future stress.
With the asset management sector poised to play an even larger role in financing the European economy, the ECB’s latest contributions mark an important step toward a more integrated and stable EU financial framework.