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European Central Bank president Christine Lagarde is urging financial regulators to tighten controls on hedge funds and other entities in the “darker corners of finance” to level the playing field with banks and prevent regulatory rollback.
Lagarde’s call for stricter regulations on hedge funds, private equity, and credit funds to achieve parity with banks contrasts with the US approach, which is easing regulations for lenders.
In her speech on Friday, Lagarde highlighted the need to address regulatory fatigue that has created an uneven playing field for financial institutions.
She noted that non-bank institutions in the Eurozone have expanded significantly and emphasized the importance of leveling the standards for non-banks involved in bank-like activities.
ECB executive Isabel Schnabel echoed Lagarde’s sentiments, advocating for a regulatory framework for hedge funds and non-banks to mitigate financial stability risks.
However, hedge funds push back against these claims, asserting that they operate under tighter rules and are less risky than traditional lenders.
The ECB is exploring ways to simplify capital and reporting rules without compromising the progress achieved in financial regulation.
Meanwhile, Bank of England governor Andrew Bailey warns against overly complex regulations, emphasizing the importance of balancing financial stability with growth and competitiveness.