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Concerns: Central Bank Governor Gabriel Makhlouf

Concerns: Central Bank Governor Gabriel Makhlouf

Concerns: Central Bank Governor Gabriel Makhlouf

THE Governor of the Central Bank wants funds and so-called shadow banks regulated in line with the regime created to control banks after the 2008 financial crisis.

Central Bank Governor Gabriel Makhlouf also questioned whether some global financial institutions actually benefit the real economy, on an online conference call organised by Bruegel, a Brussels-based think-tank.

Governor Makhlouf also said that he believes Europe has too many banks, although without mentioning the Irish market or any bank here.

"The (European) bank sector needs some consolidation," he said, citing the challenge for lenders of keeping up with the costs of technology in particular.

That idea has significant support among European central bankers despite the risk that fewer banks would ultimately mean less competition which could hurt consumers.

Banks have weathered the Covid-19 pandemic in part thanks to tougher regulation after the global financial crisis including so-called macro-prudential rules, he said.

Those rules are aimed at preventing systemic problems across banks, while before the crisis regulation historically looked at institutions in isolation.

Governor Makhlouf said a similar macro-prudential framework should now be devised for the growing non-bank financial sector.

The sector in Ireland spans everything from funds that lend to developers to the Irish arms of global money managers, many in the IFSC.

Officials here have begun talks with European institutions, he said.

"We don't need to wait for something to go wrong," he said.

The assets of non-bank or market-based financial firms grew from €1.8trn in Ireland in 2009 to €4.5trn by the start of 2020, he said.

The scale of the sector, which grew in part as banks were brought under more strict post-crash regulations, means regulators "now need to look really hard at what risks we may see", he said.

And he questioned whether some of the financial institutions produce benefits that outweigh the risks potentially posed.

"Do globally systemic institutions add value and welfare benefits to the whole economy or do they cause us downsides; and do they exceed the positive benefits?" he said.

Irish Independent