ECB’s de Guindos: Financial System Not at Crisis Centre But Strained

22 July, 2020

By David Barwick – FRANKFURT (EconoStream) – The financial system is not the focus of the crisis caused by the pandemic, but is nevertheless under pressure, European Central Bank Vice President Luis de Guindos said Wednesday.

‘Although not at the epicentre of the crisis, the financial system has been under strain during the coronavirus pandemic’, he said in a video speech at an annual symposium organised by the Program on International Financial Systems and Harvard Law School, according to a text provided by the ECB.

The profit outlook for banks, already gloomy, has come under increased pressure, ‘underscoring the need for consolidation and structural change in the sector.’

As for non-bank financial institutions, ‘the early stages of the pandemic shock have shown how investment funds in particular can contribute to amplifying adverse market dynamics by increasing market volatility and price dislocations’, he said.

Unlike banks, which entered the current crisis in stronger condition than at the time of the global financial crisis, non-bank financial institutions and especially investment funds ‘experienced a severe episode of liquidity stress and reportedly contributed to market dislocations and price volatility’, he said.

Non-bank financial institutions need a ‘stronger macroprudential framework’, he said. As leverage on the part of investment funds can aggravate procyclicality, existing regulation should be revisited, he said.