The Irish Times view on financial regulation: time to spread the net
EU regulators
are set to conduct comprehensive stress tests
of the non-bank sector, which could begin as early as next year. The non-bank sector includes hedge funds, private equity firms, and other investment vehicles that have grown significantly in size over recent years. The move has prompted fears among these investment funds that new layers of regulation are on the way. But increased scrutiny is the right course of action for two key reasons.
The creation of EU banking union in 2014 introduced a much more robust regulatory regime for systemically important banks across the 27-member union, including much stricter rules on lending and capital ratios. This has had the effect of pushing a lot of borrowing and related activities to non-bank entities, which has increased the level of risk in the sector. The stress tests aim to gauge the threat it poses to the wider economy.
There is a second and potentially more important reason. Over the first 100 days of Donald Trump's second presidency, he has slashed many of the US financial regulations introduced in the wake of the 2008 financial crisis. Of particular concern, he has hollowed out many of the federal agencies responsible for regulating the financial system and, in some cases, brought them under the direct control of the White House. Moreover, he is actively using his presidency to promote highly volatile crypto currencies.
This all creates risks in the financial markets, as does the fact that Trump's budget bill, now in Congress would, if enacted, add up to $3 trillion to the US national debt over the next decade. It is little wonder that the bond markets are nervous.
READ MORE
Trump often accuses the EU of over-regulation – and the report by former European Central Bank president Mario Draghi has argued that in some areas of the economy, particularly technology, rules do need to be streamlined.
But the events of 2008 show that the bias in financial regulation needs to be towards caution. The costs of failure are just too great. The proposed stress tests of the non-bank sector are thus to be welcomed.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Irish Times
an hour ago
- Irish Times
Ireland losing ground to US and Europe, IDA warns
The IDA said Ireland was losing ground to other EU countries and the United States because of the high cost of energy. In a series of briefings for the Government, the investment agency said strong security of power supply was 'imperative' for enticing companies into Ireland. It said the operating environment for foreign direct investment was becoming more difficult, more aggressive, and with a 'relentless focus on competitiveness.' The IDA briefing said that traditional drivers of investment like market access, tax, and talent were still important. READ MORE [ IDA chief plays down threat to Ireland from Trump's tax move Opens in new window ] However, it added: 'New drivers such as digital/green, subsidies/incentives, and friendly nation status make the environment more complex. 'Adding to the challenge for IDA in sustaining/winning investments are constraints to the carrying capacity of Ireland's economy and utilities - which are causing significant delay, backlogs and reputation risks to winning new investments.' The briefings were prepared last summer for the Department of the Environment as the investment agency warned Ireland's financial position was heavily dependent on foreign direct investment (FDI). They said any reduction in FDI would lead to a significant reduction in tax revenues. It said energy prices needed to decrease and become much more competitive as Ireland looked to attract in semiconductor and life sciences investment. One briefing said: 'Ireland is not sufficiently competitive with most other EU locations or the US.' It said a significant increase in electricity supply was urgently needed to meet a sizable growth in demand from data centres, and other sectors. A separate briefing said uncertainty over connections to the national grid for data centres was 'of concern.' It said: 'With respect to overall energy connection policy, there needs to be a transitional period for data centres (and enterprise in general) to achieve decarbonisation and net zero.' The briefing said the government should look to tap into the expertise of data centre operators around opportunities for innovation. The IDA also said there was a risk to Ireland's offshore renewable energy industry which was 'underpinned by the large data centre demand and potential demand.' It added: 'A slowdown or cessation in data centre investment could adversely affect the economics for offshore wind developers, which in turn could impact the country's ambition and targets in renewable energy development and climate action.'
Irish Times
an hour ago
- Irish Times
Czech opposition party to call no-confidence vote in government over bitcoin gift scandal
The opposition ANO party plans to call a no-confidence vote in the Czech government after the justice minister resigned over accepting a $45 million bitcoin gift for the ministry from an ex-convict, deputy ANO chief Karel Havlicek said on Tuesday. The minister, Pavel Blazek, a lawyer and veteran senior official in prime minister Petr Fiala 's centre-right Civic Democrats party, denied doing anything illegal in his decision to accept the gift – which was part of bitcoin holdings returned to the former convict after he served a jail sentence. The scandal is a further setback for the government – which has been trailing the opposition, led by the populist ANO party, in opinion polls before an election set for October 3rd-4th. 'Unless something absolutely exceptional happens, we will trigger a no-confidence vote,' Mr Havlicek, whose party has enough members of parliament to force a no-confidence motion, said on Czech Television. 'There is no other option.' READ MORE The donation was 30 per cent of bitcoin holdings of the ex-convict that had been confiscated with hardware and frozen for about decade, while bitcoin value soared. [ Crypto investor in New York charged in kidnapping and torture plot Opens in new window ] A court ordered the release of the hardware after the person served his sentence, Czech media reported. It was not clear why the person agreed to the gift and he declined to comment to Czech media. Fiala said on Tuesday he understood public suspicions that the state may have been abused for legalising criminal income, and that the issue had to be fully investigated. The person providing the gift was convicted for running an illegal marketplace on the internet and was in jail from 2017-2021 for fraud, drug trade and illegal armament, Czech media reported. – Reuters
Irish Times
an hour ago
- Irish Times
Euro-zone inflation slows below 2%, backing more ECB cuts
Euro-area inflation eased more than expected, dipping below the European Central Bank's 2 per cent target and supporting the case for interest rates to be lowered further. Consumer prices rose 1.9 per cent from a year ago in May, down from 2.2 per cent in April and below the 2 per cent median estimate in a Bloomberg survey of economists, data Tuesday showed. A core gauge excluding volatile items like food and energy moderated to 2.3 per cent, while pressures in the closely watched services sector cooled markedly. It's the first time in eight months and only the second since mid-2021 that headline inflation hasn't exceeded the target. Following Russia's invasion of Ukraine and the subsequent energy crisis, it reached a record 10.6 per cent in October 2022. The numbers arrive on the eve of the ECB's two-day rate meeting. With inflation in check and trade tensions between President Donald Trump and Europe clouding the economic outlook, another quarter-point cut in the deposit rate, to 2 per cent, is almost fully priced. READ MORE 'Despite the favourable optics, much of the decline might simply reflect a reversal of temporary pressures April, when the timing of Easter drove up tourism-related costs,' Bloomberg economist Simona Delle Chiaie said. 'Still, several factors – including the lingering effects of US tariffs – suggest further price moderation lies ahead. We expect the ECB to cut rates this week, with a follow-up move likely in September.' That could be the last easy decision for the Governing Council, however, as policymakers dispute where prices will head next – not just due to tariffs, but also the upcoming jump in European defence and infrastructure outlays. Investors reckon there'll be one more cut this year beyond June. In the short term, much hinges on trade. Most goods from the European Union are currently subject to a 10 per cent US levy, but that could jump to 50 per cent next month. Brussels has warned it may speed up retaliatory measures if Trump follows through on his tariff threats – the latest of which includes a 50 per cent levy on steel and aluminium imports. The topic will certainly be on the agenda when German Chancellor Friedrich Merz meets Trump in Washington on Thursday. Due to the uncertainty over how the trade situation will evolve, the ECB will provide scenarios alongside its quarterly projections that day. In March, it saw inflation slowing to 1.9 per cent in 2026 and 2 per cent and 2027, from 2.3 per cent this year. The euro's surprise advance and softer energy costs have since reinforced the retreat. Some policymakers have suggested there'll be a downward revision to the projection – feeding a debate over the risk of undershooting 2 per cent. Lithuania's Gediminas Simkus said last week that there's a growing danger of inflation falling short of that goal. Recent data on workers' pay have added to such concerns. The ECB's wage tracker signals a sharp slowdown in 2025 to levels below what's deemed compatible with 2 per cent inflation. That's despite unemployment holding at a record-low 6.2 per cent in April. At the same time, consumers' expectations for price growth over the next year have ticked up to 3.1 per cent – the highest since February 2024. – Bloomberg
