The shadow banking sector is a “weak point of the financial system” and could trigger the next financial crisis, warned Luis de Guindos, vice-president of the European Central Bank, in an interview with the Irish Sunday Business Post, Bloomberg and the Irish Times.

In the context of the recent rescue of the Swiss group Credit Suisse, Luis de Guindos expressed confidence that the European banking sector is “strong and stable”, but the non-banking sector “could become a source of problems for the entire financial system”. “.

The shadow banking system consists of financial intermediaries that facilitate credit creation but are not subject to regulatory oversight (brokers, venture capital firms, hedge funds, etc.).

De Guindos warned that firms in the sector took on “significant risk” when interest rates were low and could now be exposed to rising interest rates, which could affect the financial system as a whole.

The main reason for the ECB’s concern about financial stability after the problems at Credit Suisse Group AG is the non-banking sector, whose weight in the European financial system has increased, explained Luis de Guindos. He added: “We are not a supervisory authority for the non-banking sector. But these companies are interconnected with the banks that we traditionally control, so we are also looking at this sector.”

The situation is significantly different from the global financial crisis of 2008, because banks have a higher level of capital and liquidity, well above the minimum requirements, says Luis de Guindos.

Also, the official representative of the ECB estimated that the banking system is “passing through a period of high uncertainty”, which requires an approach to monetary policy at each meeting, without prior commitment to specific actions.

“We are open about the future. The question now is how the US banking system and Credit Suisse will affect the Eurozone economy. In the coming weeks and months, we have to analyze whether we will tighten financial conditions further,” de Guindos said.

He expressed the desire for a “quick” return to the ECB’s inflation target of 2%. “We know that this cannot be achieved immediately, but it must be within our forecast horizon of two years. The trajectory of inflation is much more important than just returning inflation to the 2% target,” said Luis de Guindos. .

According to Eurostat data, the annual inflation rate in the eurozone decreased from 8.6% in January to 8.5% in February. This is the fourth month in a row that prices have slowed in the eurozone, after a record 10.6% rise in October.