(Reporting by Giancarlo Navach
Writing by Keith Weir, editing by Gavin Jones, William Maclean)
(Adds further quotes)
By Giancarlo Navach
CERNOBBIO, Italy, April 1 (Reuters) - The European
Central Bank (ECB) is monitoring broad risks across the
financial sector and will act to preserve stability in the euro
area, ECB vice-president Luis de Guindos said in a speech on
Saturday.
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.
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