ECB’s Knot: Financial Stability Dependent on a Resilient NBFI Ecosystem
20 May 2024
By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Monday said that the non-bank financial intermediation (NBFI) sector should be strengthened as its close connections to banks could pose risks to financial stability.
Speaking at the Conference on Macroprudential Policy for Investment Funds at the Central Bank of Ireland, Knot, who heads De Nederlandsche Bank, said, according to a text provided, ‘It is important to keep in mind that the NBFI ecosystem is highly connected across entities, and with the banking sector. This creates the risk that local stress will be transmitted to other parts of the financial system and across borders. For this reason, global financial stability is increasingly dependent upon a resilient NBFI ecosystem.’
There were underlying vulnerabilities in the NBFI sector, such as the exposure of investments funds to further liquidity strains, he said.
‘[I]t is critical to finalise and implement international reforms to enhance NBFI resilience’, he said. ‘Thereafter, we will be well placed to assess whether any regulatory gaps remain and to move forward toward a macroprudential approach.’
Using pre-existing tools for systemic risk mitigation had proven to be limiting, he said, adding that it would be ‘important to assess whether the repurposing of existing tools is sufficient to address systemic risks in NBFI – or whether new tools are needed.’