Mark Branson, the head of Germany’s financial regulator BaFin has warned of risks to financial stability. Specifically, shadow banks are a thorn in his side because of their rapid growth – and crypto markets, as he explained to journalists in Frankfurt. He is worried about so-called shadow banks and points to the extraordinarily dynamic growth of the financial sector outside traditional banks.
According to the “FAZ,” the head of Bafin fears the very dynamic growth of this sector because of the contagion risks it poses. In the little-regulated sector, higher risks could be taken. These could also lead to high losses for banks. Branson referred to the difficulties of the American hedge fund Archegos. This caused losses of five billion Swiss francs for the central Swiss bank Credit Suisse. “We should not underestimate the dangers, even if parts of this sector are regulated. This sector has grown extremely. There are more risks there than in the past,” the “FAZ” quotes Branson.
The Basel-based Bank for International Settlements (BIS) had warned of these risks a year ago. According to its figures, shadow banks control some $200 trillion, or half of the assets in the world’s financial markets. Branson estimates the growth of these financial intermediaries in Europe over the past three years at 50 per cent. He attributes this to the hunt for yield in times of historically low-interest rates. Another reason, he says, is also the stricter regulation of banks since the financial crisis, which has tempted them to move risky business into less regulated areas.
The Bafin chief is also concerned about developments in the crypto market. Following the collapse of FTX, a trading platform for digital assets such as bitcoin and ether, investors are fearful for billions in the aggregate. “Maybe the collapse of this market came at the right time. But now we need to learn the lessons,” Branson said at the event. “We shouldn’t leave this unregulated hoping it will die out.”