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.
Reporting by Bart Meijer; Editing by Kevin Liffey