Ecb Luis De Guindos Financial Sector Is Facing Broad Risks

Ecb Luis De Guindos Financial Sector Is Facing Broad Risks by Ashly Chole last updated on April 22, 2023

ECB's Luis De Guindos: Financial Sector Is Facing Broad Risks

The ECB's vice president recently mentioned how the financial sector is facing broad risks in one of his speeches a few days ago. He made it clear that the central bank is closely monitoring these risks and will act to keep the euro area stable.

De Guindos said that the banks in the EU region had strong liquidity positions and capital. However, he also warned how the system had risks arising from a lot of areas.

Non-Banking Sector At Higher Risk

He added that the non-bank financial sector has a lot more vulnerabilities than the banking sector. The reason for this was the low-interest rate environment in the EU which spur growth and allowed the sector to take more risk.

De Guindos also stressed the need to introduce policy reforms aimed at addressing these vulnerabilities in the system.

He said that policies that are aimed at building resilience should be given priority. This involves mitigating the risk arising from leverage, correcting liquidity mismatch, and so on. According to him, working on liquidity preparedness in the EU is also an urgent matter.

These comments are coming when the ECB has said goodbye to long periods of low-interest rates. In fact, the central bank is now on a hawkish path and continues to raise the interest rate every month.

This fast pace of rate hikes has opened the door to turmoil in the EU's financial markets. Elsewhere, other financial markets where the rates were increased are also going through the same trouble.

On the accounts of headline inflation in the EU, Mr. De Guindos said it would go down this year (2023). However, he was not so optimistic about the underlying inflation in the region.

He said that there are risks of high inflation due to higher profit margins, higher prices, and higher wages in the region.