They should be pursued as a matter of priority, while ensuring a globally consistent approach. Third, it is essential to address risks from non-bank leverage from various perspectives. A key priority should be to develop a globally consistent approach to addressing risk from both financial and synthetic leverage in the non-bank financial sector. Further improving data quality and coverage and information sharing are central to assessing leverage-related risks across non-bank financial sector entities and activities. This work should be complemented by identifying gaps in policy frameworks globally, especially where financial entities are not subject to adequate leverage rules. Fourth, there is a need to enhance margining practices and liquidity preparedness to meet margin calls. Since the March 2020 market turmoil, the non-bank financial sector has been repeatedly confronted with periods of high market volatility and surging liquidity needs from margin calls. Increasing the transparency and predictability of initial margin models and assessing their responsiveness to market stress can help reduce the procyclical demand for liquidity. In addition, ensuring robust liquidity risk management and contingency planning frameworks would mitigate risks associated with inadequate liquidity preparedness. More generally, we must recognise the cross-border dimension of activities and regulatory developments in the non-bank financial sector and the importance of global coordination. For example, the new guidance recently proposed by the US Financial Stability Oversight Council facilitating the designation of non-banks as systemically important demonstrates that these issues are being considered outside of Europe.

SPEECH  Towards a stronger non-bank financial sector Speech by Luis de Guindos, Vice-President of the ECB, at the Association for Financial Markets in Europe (AFME) and Official Monetary and Financial Institutions Forum (OMFIF) 3rd Annual European Financial Integration Conference Frankfurt am Main, 23 May 2023 In recent years, the global economy has been hit by a series of unprecedented shocks – including a pandemic, the outbreak of war, and an energy crisis. And with geopolitical tensions on the rise, we may see the frequency of such shocks even increase. The prospect of an increasingly shock-prone economy means that it has never been more important to ensure the financial sector is resilient to challenges that come its way. And today, I would like to share some thoughts on financial integration in the euro area, focusing on the important role of the non-bank financial sector in the euro area financial system. The importance of the financial system for the economy A strong and integrated financial system is essential to support the growth and resilience of the euro area real economy. Well-developed and broad capital markets can help to efficiently allocate capital to the most innovative and productive companies, thereby contributing to economic growth. Market-based finance also allows companies to diversify their funding sources and facilitates increased cross-border funding. This can result in greater risk-sharing across the euro area and contribute to overall financial resilience. Investment funds, for instance, play an important role in financial integration.