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. it is vital that work to identify and address systemic risks is carried out jointly across countries, taking a macroprudential perspective rather than solely focusing on the soundness of individual entities. conclusion let me conclude. in the past decade, we have seen the role that non - banks play in financing the euro area economy become increasingly important. while this is a welcome development in terms of promoting financial integration and supporting economic growth, it also entails increased risks for the financial system. interconnectedness between the banking and the non - bank financial sector remains high, increasing the scope for contagion. given these growing risks, the policy action undertaken to date is becoming ever more insufficient. indeed, there seems to be a general inertia in the adoption of policy recommendations on non - banks. that has to change. the lack of policy action today may mean the materialisation of risks tomorrow. in particular, a more comprehensive macroprudential framework should be a priority to ensure that non - banks are more resilient and able to provide a stable source of funding to the real economy in both good and bad times. thank you. 1. molestina vivar, l., lambert, c., wedow, m. and giuzio, m. ( 2020 ), “ is the home bias biased? new evidence from the investment fund sector ”, financial integration and structure in the euro area, ecb, march. 2. financial stability board ( 2013 ), strengthening oversight and regulation of shadow banking. policy framework for strengthening oversight and regulation of shadow banking entities, august. 3. “ all financial institutions ” excludes the

default had only a limited impact on the broader financial system, the event nevertheless highlighted possible contagion channels to banks through the provision of synthetic leverage by prime brokers. the third vulnerability in the non - bank sector results from an insufficient preparedness to meet large demand for liquidity, especially from margin calls – as the recent stress episode in the uk pension fund sector has highlighted. in the united kingdom, pension funds had made extensive use of leveraged strategies to hedge long - term interest rate risk and free up capital to generate higher returns in their investment portfolios. many smaller pension funds had pooled their hedging activities in liability - driven investment ( ldi ) funds. but a sudden increase in uk government bond yields in september 2022 led to large valuation losses and margin calls, which meant these funds had to deleverage and raise additional cash from their pension fund trustees. as a result, pension and ldi funds were forced to sell assets, including gilts, which amplified gilt market movements and liquidity stress. and in response, the bank of england had to intervene on financial stability grounds through temporary purchases of long - dated uk government bonds. while these new risks and vulnerabilities are evident, the non - bank financial sector has remained largely stable in recent months, despite the stress in the banking sector that emerged in march. fund investors shifted their exposure from higher to lower risk assets, especially from high - yield corporate to government bond funds. portfolio de - risking has also been evident in insurance corporations and pension funds, as higher interest rates have reduced incentives for the non - bank financial sector to search for yield. but there are no grounds for complacency here. structural vulnerabilities from liquidity mismatches and leverage remain elevated despite recent de - risking. moreover, bank and non - bank financial institutions can be closely interconnected through funding channels, ownership linkages and common risk exposures. the non - bank financial sector remains particularly exposed to asset price corrections and credit risk should corporate sector fundamentals deteriorate substantially. in addition, non - banks ’ exposure to property markets has increased markedly in recent years, rendering institutions vulnerable to ongoing price corrections in real estate markets. fragile risk sentiment and elevated vulnerabilities in parts of the non - bank financial sector could amplify negative shocks. strengthening the resilience of non - bank financial intermediation given the vulnerabilities in the non - bank financial sector, it is vital to