The European Central Bank has warned that rising risks at so-called shadow banks have left EU regulation “ever more insufficient” to prevent further financial market shocks from triggering a wider liquidity crisis.
Luis de Guindos, vice-president of the ECB, said there were “increased risks for the financial system” from shadow banks, such as hedge funds, asset managers, pension funds and insurers, which have grown rapidly in the past decade but remain more lightly regulated than banks.
“Interconnectedness between the banking and the non-bank financial sector remains high, increasing the scope for contagion,” de Guindos told a financial conference in Frankfurt on Tuesday, adding that the sector was particularly exposed to rising interest rates and falling asset prices.