Euro zone shadow banks need more regulation to mitigate risk - ECB

Euro zone shadow banks need more regulation to mitigate risk - ECB
FILE PHOTO: Vice-president of the European Central Bank Luis de Guindos attends a news conference in Vilnius, Lithuania June 6, 2019. REUTERS/Ints Kalnins -
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FRANKFURT (Reuters) – Shadow banks in the euro zone need to be better regulated as their rapid growth poses a broader risk that could even spread to traditional lenders, European Central Bank Vice President Luis de Guindos said in Lisbon on Thursday.

“Through increased risk-taking and leverage, non-banks may currently be contributing to the cyclical under-pricing of risks and the amplification of asset prices,” de Guindos said about the sector, which includes funds, special purpose vehicles and security and derivative dealers, among others.

“If these risks were to unwind in a disorderly manner, this could lead to funding flows drying up and affect the funding conditions of the real economy more broadly,” de Guindos added.

As a result, euro zone authorities need to “urgently” develop and if necessary, deploy macroprudential instruments for non-banks as well, de Guindos added.

(Reporting by Balazs Koranyi; Editing by Michelle Martin)

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