©Reuters. FILE PHOTO: Luis de Guindos, Vice President of the European Central Bank (ECB), attends a news conference following the ECB’s monetary policy meeting in Frankfurt, Germany, December 15, 2022. REUTERS/Wolfgang Rattay
By Giancarlo Navach
CERNOBBIO, Italy (Reuters) – The European Central Bank (ECB) is monitoring broad risks across the financial sector and will act to safeguard stability in the euro area, ECB Vice President Luis de Guindos said in a speech on Saturday.
De Guindos reassured the established banking sector in the single currency zone, saying banks have strong capital and liquidity positions but warned of greater dangers elsewhere in the system.
“…In our view, vulnerabilities in the financial system outweigh the non-bank financial sector, which has grown rapidly during the low interest rate environment and increased its risk appetite,” De Guindos said at the Ambrosetti Business Forum in northern Italy.
He said policy reforms to address these vulnerabilities are crucial.
“Priority should be given to policies that help build sector resilience, e.g. B. by reducing liquidity mismatches, mitigating risk through leverage and improving liquidity provision across a wide range of institutions,” he said.
The ECB has raised interest rates to curb rising inflation, but there have been concerns that these higher borrowing costs are fueling turmoil in financial markets.
De Guindos said headline inflation is likely to fall significantly this year but underlying inflation dynamics remain strong.
“Feedback between higher profit margins, higher wages and higher prices could pose more permanent upside risks to inflation,” he said.
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