May 12, 2014 / 7:12 AM / 3 years ago

Tough bank rules could spur shadow banking-Nowotny

VIENNA, May 12 (Reuters) - Stepped-up supervision of the banking sector could drive some risky activity into the shadow banking sector, European Central Bank policymaker Ewald Nowotny said on Monday.

"There is a danger that intensified regulation in the banking sector might cause important and risky business activities to be shifted into less regulated areas such as shadow banking entities," he said in remarks prepared for a conference on banking union.

National differences allowed in supervising second-tier banks could distort competition to some degree, he added, but he said there was an argument for some degree of differentiation to address cultural differences and local financial cycles. (Reporting by Michael Shields; Editing by Georgina Prodhan)

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