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De
Guindos provided reassurance on the established banking sector
in the single currency zone, saying banks had strong capital and
liquidity positions but he warned of wider dangers elsewhere in
the system.
"...In our view, vulnerabilities in the financial system prevail
in the non-bank financial sector, which grew fast and increased
its risk-taking during the low interest rate environment," De
Guindos told the Ambrosetti business forum in northern Italy.
He said policy reforms to address these vulnerabilities were
critical.
"Priority should be given to policies that help build resilience
in the sector, such as by reducing liquidity mismatch,
mitigating risk from leverage, and enhancing liquidity
preparedness across a broad range of institutions," he said.
The ECB has been raising interest rates to try to curb rising
inflation but there have been concerns that these higher
borrowing costs are fuelling turmoil in the financial markets.
De Guindos said that headline inflation was likely to decline
considerably this year but underlying inflation dynamics would
remain strong.
"The feedback between higher profit margins, higher wages and
higher prices could pose more lasting upside risks to
inflation," he said.
(Reporting by Giancarlo Navach; Writing by Keith Weir, editing
by Gavin Jones, William Maclean)
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