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Draghi: EU risk body needs to mitigate shadow banking risk

ECBPresident Mario Draghi said the European Systemic Risk Board needs to adapt itspolicy framework to minimize migrating risks as financial intermediation shiftsfrom banks to nonbanks.

Draghi cited the ESRB's July shadow banking report, wherein the EUbody cited rising liquidity mismatches, especially among some bond funds. Hesaid the ESRB is further analyzing systemic risks posed by liquidity mismatchand leverage in investment funds.

Draghi said that while low interest rates tend to squeeze netinterest margins owing to downward rigidity in European banks' deposit rates,overbanking is also a factor in the current low level of bank profitability.He also urged some banks to review their business models to bolsterprofitability in the "broader context of generalized overcapacity andtechnological innovation."