Madouros: Non-bank finance resilience needs stronger safeguards
Vasileios Madouros, Deputy Governor of the Central Bank of Ireland, called for stronger safeguards for non-bank finance. He stressed the sector's growing importance and its vulnerability to adverse shocks.
Navigating a shifting financial landscape
Vasileios Madouros, Deputy Governor of the Central Bank of Ireland, highlighted the significant growth of non-bank finance, which now holds half of global financial assets.
He stressed the importance of safeguarding the sector's resilience against 'tail risks' amid unpredictable geopolitical developments and evolving financial activities.
Madouros referenced past episodes like the 2020 'dash for cash' and the 2022 LDI crisis, where vulnerabilities in the funds sector led to market disruptions requiring central bank intervention.
These events underscore the necessity of a macroprudential approach to non-bank regulation, ensuring the sector performs its core economic functions even during turbulence.
LMTs and hedge funds under scrutiny
The Central Bank of Ireland is intensifying its focus on implementing and surveilling non-bank financial stability measures.
Madouros presented findings from two in-depth assessments.
For Irish open-ended funds, price-based liquidity management tools (LMTs) are widely available (85% of funds) but their use remains less widespread, particularly in high-yield bond funds during market turbulence.
To enhance consistency, the CBI published good practices for determining implicit costs.
Separately, the Irish hedge fund sector, managing €400 billion in assets, is diverse but characterized by high leverage, playing an increasing role in core sovereign debt markets.