ECB's Lagarde urges tighter EU regulation on growing non-bank financial sector

European Central Bank President Christine Lagarde has called for stronger regulation and supervision of non-bank financial entities, such as investment funds and insurers, which have grown significantly and now hold assets equivalent to about 350% of Europe's GDP. Lagarde emphasized the need to level the regulatory playing field by raising standards for non-banks involved in bank-like activities rather than lowering standards for traditional banks, warning that the looser regulations for these entities pose systemic risks. She highlighted that the time elapsed since the last financial crisis has dulled policymakers' alertness to emerging risks, which now increasingly reside outside the traditional banking sector, particularly in hedge funds and credit funds. Other European central bankers, including Bank of England Governor Andrew Bailey and ECB board member Isabel Schnabel, echoed concerns about the risks of regulatory rollbacks and the necessity of robust yet simplified regulatory frameworks to prevent a repeat of the 2008 crisis. Lagarde warned that if risks build outside the banking system beyond regulatory oversight, monetary policy might become the only tool to manage financial instability. Her message underscores an urgent call for policymakers to adapt regulations to the evolving financial landscape by tightening supervision of non-banks before it is too late.