The European Central Bank (ECB) is monitoring broad risks throughout the financial sector and can act to protect stability in the euro space, ECB vice-president Luis de Guindos stated in a speech on Saturday.
Mr. De Guindos offered reassurance on the established banking sector in the one foreign money zone, saying banks had robust capital and liquidity positions however he warned of wider risks elsewhere in the system.
“…In our view, vulnerabilities in the financial system prevail in the non-bank financial sector, which grew fast and increased its risk-taking during the low interest rate environment,” De Guindos informed the Ambrosetti enterprise discussion board in northern Italy.
He stated coverage reforms to deal with these vulnerabilities have been essential.
“Priority should be given to policies that help build resilience in the sector, such as by reducing liquidity mismatch, mitigating risk from leverage, and enhancing liquidity preparedness across a broad range of institutions,” he stated.
The ECB has been elevating rates of interest to attempt to curb rising inflation however there have been considerations that these increased borrowing prices are fuelling turmoil in the financial markets.
Mr. De Guindos stated that headline inflation was prone to decline significantly this yr however underlying inflation dynamics would stay robust.
“The feedback between higher profit margins, higher wages and higher prices could pose more lasting upside risks to inflation,” he stated.
