For that, Christine Lagarde, president of the European Central Bank (ECB), warned in a speech at De Nederlandsche Bank (DNB). “Because of this decreasing sense of urgency and the fear that the competitiveness of banks compared to non-banks is threatened by the unequal playing field, according to some, the existing financial regulations must be revised.”
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Lagarde spoke at a symposium in honor of the farewell of Klaas Knot, the recently left President of DNB. The Française is concerned about the risks in the financial system and then specifically about financial institutions that do not fall under the banking rules.
Dormant risks
“A better supervision of non-banks would make potential dormant risks for financial stability in the darkest caves of the economy more visible, allowing policy makers to anticipate it,” she said. “In the euro area, non-banks-from investment funds and insurers to money market funds and securitization heets-have grown from around 250 percent of the gross domestic product in 2008 to more than 350 percent today.”
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Lagarde sees a tendency to relax the rules for banks so that there is a ‘level playing field’ with all kinds of financial parties that do not fall under those strict rules. “As referees on the playing field, policymakers must resist regulatory fatigue and double their efforts to extend stricter global rules to non-banks involved in bank-like activities, or who have important ties with banking.”
Danger
She praised Klaas Knot, who, as chairman of the Financial Stability Board, rather argued for stricter rules for the financial world. “Klaas, as an FSB chairman you have warned greatly about the dangers of reversing the regulations.”
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On Thursday evening, Lagarde said in a conversation with students that Knot could be a suitable successor for her as the ECB boss. “I have experienced him for at least six years. He has the intellect, the endurance and the ability to involve others,” said Lagarde.
According to her, the most important task of the ECB president is to align all central bankers on the board. “These are often primadonnas, you have to facilitate all of them. He has that power. But he is not the only one.” Lagardes term will end in a year.