A largely unregulated shadow banking sector and anemic profitability among tradi...
FRANKFURT - A largely unregulated shadow banking sector and anemic profitability among traditional lenders are among the euro zone’s biggest financial vulnerabilities, the European Central Bank said in a biannual stability assessment on Wednesday.
With ultra-low ECB rates weakening bank earnings, boosting borrowing and encouraging excessive risk-taking, euro zone financial vulnerabilities have been on the rise for years. Rates are likely to stay low well into the next decade, potentially fuelling further distortions. Shadow banks are growing at the expense of traditional lenders, which are saddled with a heavy regulatory burden, the legacy of the global financial crisis that is still forcing many to accumulate capital.
Weak profits are a problem as banks still transmit the bulk of the ECB’s policy to the real economy and their plight could weaken the effectiveness of the ECB’s easy money policy.
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