Reuters: Regulatory News: UPDATE 1-Bank reforms risk more shadow banking - ECB's Liikanen

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UPDATE 1-Bank reforms risk more shadow banking - ECB's Liikanen Oct 18th 2012, 09:25 Thu Oct 18, 2012 5:25am EDT * Says measures may be needed to address shadow banking * Says losses, not just profits, must fall on risk-takers FRANKFURT Oct 18 (Reuters) - Policymakers must guard against the risk that banking sector reforms could drive more business into the shadow banking sector, European Central Bank Governing Council member Erkki Liikanen said on Thursday. Liikanen, the Bank of Finland governor, led an advisory group that called earlier this month for banks' traditional deposit-taking business to be legally separated from higher risk activities. The risk of reforms to the sector that they "drive an increasing part of banking into the shadow banking sector," Liikanen said in a lecture at Frankfurt's Goethe University. Shadow banking describes credit generated outside traditional, regulated banking channels. "This is a matter that needs further consideration and needs to be constantly monitored. Pro-active measures may be needed," Liikanen said. Recommendations of Liikanen's advisory group, set up by the European Commission, aim to shield taxpayers from having to fund further bank bailouts and to protect savers from any more banking collapses after more than five years of crisis. The group's recommendations have drawn fire from the industry even though they stopped short of demanding a full break up of lenders. "We must ensure that also in banking, as in other industries, not only gains but also losses incurred from private risk-taking fall on the risk takers, not so that profits are private but losses are public," Liikanen said. Link this Share this Digg this Email Reprints

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