FRANKFURT (Reuters) – Non-bank financial firms, more commonly known as shadow banks, need tighter regulation as their increasing risk profile could impair central bank policy during periods of stress, European Central Bank board member Isabel Schnabel said on Tuesday.
“To preserve financial stability and protect policy transmission, the current regulatory landscape needs to better reflect the fact that credit intermediation increasingly takes place outside the banking sector,” Schnabel, the head of the ECB’s market operations, told a conference.
“Non-banks have taken on substantial duration, liquidity and credit risks on their balance sheets,” Schnabel said. “This also comes with new risks that may impair policy transmission in periods of financial stress.”
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