Weber warns of crisis risk from unregulated groups

Julian Harris
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HEDGE funds and other parts of the “shadow banking sector” pose an increasing systemic risk to the financial system, European Central Bank official Axel Weber said yesterday.

Likening new regulations like Basel III to coastal defences, Weber said: “With stricter rules for the regular banking sector, there is a clear danger that more and more activities will flow around the newly erected dikes and add to the ocean of unregulated activity at our back.”

“The ocean is the so-called shadow banking sector,” Weber explained, arguing that organisations that “replicate the classic activities of banks” but are less regulated could spread risk back to the more regulated areas.

“We have to take a close look at the shadow banking sector, understand what is going on there and ultimately control the systemic risks that we have identified,” he added.