FRANKFURT, Nov 22 (Reuters) - Euro zone shadow banks face the risk of receiving large margin calls or client redemptions they cannot meet because they do not have enough cash on hand, the European Central Bank (ECB) said on Wednesday.
The ECB said liquidity buffers among shadow banks - an umbrella term for funds, insurers and other non-bank financial intermediaries (NBFI) - were "very low", exposing them to the risk of running out cash at times of market stress.
Insurance companies and pension funds (ICPF) that use derivatives could be exposed to the risk of "large margin calls", the ECB added, citing those suffered by their UK peers last year as a precedent.
"Any sharp increase in sovereign bond yields or a spike in financial market volatility could expose those ICPFs which use interest rate derivatives to large margin calls," the ECB said.
The central bank reiterated its call for introducing regulation for shadow banks like the one that governs traditional lenders, including liquidity requirements and stress tests.
Persons:
Francesco Canepa, Mark Potter
Organizations:
European Central Bank, ECB, Insurance, Thomson
Locations:
FRANKFURT