Regulators Warn of Bank Ties to 'Shadow Banking'
A joint report by the ECB and the European Systemic Risk Board (ESRB) has identified growing financial stability risks from linkages between banks and non-bank financial intermediaries. This sector, often called 'shadow banking,' includes investment funds and other financial entities that operate outside traditional banking regulations. The report warns that liquidity shocks in the non-bank sector could spill over into the banking system, potentially destabilizing the broader economy. Regulators are calling for closer monitoring and enhanced stress testing to manage these interdependencies. The findings aim to ensure that the European financial system remains resilient against systemic contagion.
EU regulators warn that traditional banks are increasingly vulnerable to 'shadow banking' risks.