The president of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, has warned on Tuesday that shadow banks are growing rapidly throughout the euro zone, representing an increasing risk for the financial system and that the sector You should be stricter in dealing with them.
Shadow banking includes non-banking entities that provide financial services outside the radar of supervisors, which do not have a bank record and therefore do not accept deposits, but do invest in savings, transfers or financing, such as funds capital, insurers, exchange houses or venture capital. It has 31 trillion euros in assets in the euro zone, equivalent to 80% of the supervised banking sector, but its regulation is more lax so that it often carries out riskier operations.
“The risks could intensify in the coming months as monetary policy continues its effort to bring inflation back to its target,” Enria said. The ECB has not yet concluded the rate hike phase.
He has also claimed that leverage has risen sharply among shadow banks, that there is a large mismatch in the duration of their assets and liabilities, and that there is insufficient preparation to deal with a large demand for liquidity.
Enria acknowledges that the concern stems from shadow banks having remained largely unregulated and risks allowed to grow virtually unchecked. In addition, as they are closely related to the banking sector, the tensions could spread to more traditional entities, forcing them to actively manage client risk.
“Non-bank funding is arguably one of the most significant contagion channels from a systemic risk perspective, as non-banks maintain their liquidity reserves primarily as deposits with banks,” he said.
For Enria, the ideal would be a new regulation, but he assures that it takes time to negotiate and apply it, which is why banks are vulnerable in the short term. For this reason, he says the most important safeguard is for banks to be aware of the risks and actively manage them when dealing with shadow banks.
