A Bank of England The official calls for more research on non-bank lenders.
This effort would help prevent a “credit crunch”. This could result from a withdrawal by hedge funds, pension funds, asset managers and insurers, the deputy governor of the Bank of England (BoE) has said. Sarah Breeden said Monday (Feb. 26).
“A shift in market-based finance's willingness to lend to companies, particularly those that may be heavily indebted, would have a significant impact on the real economy – a credit crunch that would be more likely to result from market-based finance than bank lending,” Breeden said, whose comments at a BoE conference were reported by the Financial Times.
Breeden added that she was “particularly interested in research that uncovers risks in the broader non-banking sector,” and said more research would help the central bank identify risks early.
“Assessing risk in market-based finance is challenging,” Breeden said, noting the “complexity and interconnectedness of sectors.”
She also acknowledged that “activity markets and participants make it difficult to identify risks and predict how they might be transmitted through the system.”
The BoE is currently working on its first review of how financial markets operate under stress, called a “system-wide exploratory scenario”. The aim of the assessment is to examine 50 institutions to assess how they would respond to possible shocks.
Their comments are as follows: “It’s the regulators.” sharpen their collective gaze about the risks of nonbank companies,” as PYMNTS wrote last year.
For example, the U.S. Treasury Department's Financial Stability Oversight Council (FSOC) announced last fall that it had created a new financial stability risk analysis framework and updated guidance for assessing nonbank financial entities.
“Financial stability is a public good, and we need a robust structure to monitor and address the buildup of risks that could threaten the financial system,” Treasury Secretary Janet Yellen said in a news release, PYMNTS reported in November.
And as noted here earlier this month, Federal Reserve data showed that America's banks are now lending to non-deposit-taking financial firms over $1 trillion.
Michael Hsuacting head of the Office of the Comptroller of the Currencyrecently told the FT he believed the loosely regulated lenders were pushing banks to make lower quality, higher risk loans.
“We need to resolve the race to the bottom,” Hsu said. “And I think part of the solution is giving these unbankeds the attention they deserve.”
For more information, see: Bank of England, BANKING REGULATIONS, BoE, Corporate Lending, Economy, Financial Stability Oversight Council, FSOC, News, Non-Bank Financial Institutions, Non-Bank Lenders, PYMNTS News, What's Hot
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