Simon Goldie, Director of Advocacy
In a recent Financial Times interview Klaas Knot, chair of the international Financial Stabilities Board (FSB) stated that the Board will be reviewing whether hedge funds and private equity firms are too highly leveraged and pose a potential risk to financial stability. The FT article informs us that the FSB “hopes to announce recommendations on monitoring and limiting non-bank leverage next year”.
The FSB consists of central bankers, finance ministers and regulators.
The Bank of England is also tasked with making sure the financial system is stable. Its latest Financial Stability Report discussed non-banks (pension funds, and insurance companies) and liquidity risk.
As Sherlock Holmes would say, “it appears something is afoot”.
However, we have been here before. The Central Bank regulators tend not to understand how the non-bank sector works, nor do they comprehend its contribution to economic growth, particular its support for small businesses. To help them, we keep a close eye on their deliberations and feed into such reviews by demonstrating the importance of our non-bank members. We also continue to discuss a support scheme modelled on the Bank’s Term Funding for SMEs (TFSME) for non-banks.
The reviews and debates around non-bank activity and risk, provide us with an opportunity to raise these issues again and remind them of our recommendations. We will also be making sure to keep HM Treasury informed.
Published 29 Sep 2023