Reuters: Bank reforms risk more shadow banking - ECB's Liikanen

18 October 2012

Policymakers must guard against the risk that banking sector reforms could drive more business into the shadow banking sector, European Central Bank Governing Council member Erkki Liikanen said on Thursday. (Includes link to CNBC interview with Liikanen.)

Liikanen, the Bank of Finland governor, led an advisory group that called earlier this month for banks' traditional deposit-taking business to be legally separated from higher risk activities.

The risk of reforms to the sector that they "drive an increasing part of banking into the shadow banking sector," Liikanen said in a lecture at Frankfurt's Goethe University.

Shadow banking describes credit generated outside traditional, regulated banking channels.

Recommendations of Liikanen's advisory group, set up by the European Commission, aim to shield taxpayers from having to fund further bank bailouts and to protect savers from any more banking collapses after more than five years of crisis.

The group's recommendations have drawn fire from the industry even though they stopped short of demanding a full break up of lenders.

Full article

CNBC video: EU Needs New Laws to Deal With Failed Banks: Liikanen © CNBC LLC


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