The EU's European Systemic Risk Board, or ESRB, adopted a "recommendation" for systemic risks on liquidity mismatches and the use of leverage in investment funds, which will be published in early 2018.
The risk watchdog, chaired by European Central Bank President Mario Draghi, said there are concerns that investment funds may trigger a future financial crisis as their role in financial intermediation is expected to grow as the EU moves to further integrate the capital markets of its 28 states ahead by 2019.
Investment funds in the bloc have grown to a size similar to that of the banking sector, Reuters noted in a Dec. 20 report, having taken businesses that lenders could not salvage after the financial crisis. The recommendations from the ESRB are not compulsory but are instead designed to call the EU and national lawmakers to action, the newswire noted.
The ESRB will also publish "in due course" a report on sovereign bond-backed securities and on the macroprudential use of structural buffers.