ECB’s Knot calls for stricter regulation of shadow banking

AMSTERDAM (Reuters) – The rise of non-bank financing is creating a major risk for financial stability in the euro zone and needs to be better regulated, European Central Bank board member Klaas Knot said on Monday.

“Non-bank financial intermediaries provide a high and increasing share of financing in the high-yield debt market,” Knot, president of the Dutch central bank, said in a speech in Amsterdam.

“Should conditions deteriorate, such financial intermediaries are directly exposed to considerable potential losses. And perhaps even more important, there could be system-wide spillovers beyond the high-yield debt markets.”

Stricter regulation of the so-called shadow banking sector could mitigate risks, Knot said, pointing at rules for mortgage lending in the Netherlands that apply to banks and other lenders alike.

“If we conclude that … excessive debt and leverage of non-financial counterparts are actually the main drivers of risk, we could also look for instruments that aim to address these directly, such as borrower-based regulation.”

Knot was last week appointed vice chair of the Financial Stability Board (FSB), a body that has been coordinating new banking rules for the Group of 20 economies since the global financial crisis a decade ago.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.