ECB's Sharon Donnery warns about financial risks posed by shadow banks

Sharon Donnery of the European Central Bank (ECB) has warned her colleagues about the risks posed by the activities of shadow financial organizations. The number of such firms in the region has grown significantly in recent years. Market conditions are becoming increasingly uncertain, and such non-bank intermediaries may be hit first by geopolitical instability and volatile asset prices. This, in turn, could negatively impact the financial system of the entire region, the official cautioned.

In addition, these so-called shadow banks are poorly regulated in Europe, making them an even greater threat in the current unstable environment, Donnery said. Traditional financial institutions often interact with such non-bank intermediaries through lending and investment operations, increasing their vulnerability if shadow firms encounter difficulties.

To mitigate these risks, Donnery suggested strengthening the regulatory framework for such organizations and ensuring sufficient liquidity.