The Bank of England has called for tougher regulations for non-bank finance companies and pension schemes to prevent future financial crises. The central bank’s financial policy committee’s quarterly report on the UK’s financial system emphasized the need for increased resilience among non-bank lenders, stressing that the global financial system is still adjusting to higher interest rates. The report also highlighted the need for pension funds to increase their reserves and for money market funds and other major institutions to be more resilient during investor panic. While British banks remain resilient to further financial shocks, the Bank’s governor, Andrew Bailey, has called for continued vigilance.
Concerns over Non-Bank Finance Companies
The Bank of England’s financial policy committee has called for tougher regulations governing non-bank finance companies to prevent future financial crises. While British banks remain resilient to further financial shocks, the Bank’s quarterly report on the UK’s financial system highlighted the need for increased resilience among non-bank lenders. The report noted that non-bank finance companies that lend trillions of dollars globally are still adjusting to higher interest rates in the US, euro area, and the UK, which could lead to difficulties for some lenders.
- The Bank called for greater resilience among non-bank finance companies to reduce systemic risk in the UK and the global financial system.
- The Bank of International Settlements has warned for over a decade that non-bank lenders’ increasing influence should be considered when drawing up financial regulations.
Pension Scheme Rules
The Bank’s financial policy committee’s quarterly report on the UK’s financial system emphasized the need for pension funds to increase their reserves, particularly those using liability-driven investments (LDIs) that were hit by last autumn’s crisis when the value of government bonds sharply fell. The report called for funds using LDIs to face new stress tests to prevent another crisis, and for other major institutions in the financial system, including money market funds, to be more resilient during investor panic.
- The FPC’s report called for money market funds, pension funds, and other major institutions to be more resilient during investor panic, to reduce systemic risk in the UK and the global financial system.
- The Bank’s governor, Andrew Bailey, called for continued vigilance following the recent collapse of Silicon Valley Bank, stating that the Bank was on high alert.
Resilience of British Banks
The Bank of England’s financial policy committee’s quarterly report on the UK’s financial system found that British banks remain resilient to further financial shocks. The report stated that major banks have large liquidity asset buffers, with around two-thirds in the form of cash or central bank reserves, and that banks are generating bigger profits to protect themselves. The review also found that the pressure on households and companies had eased since its last report in December, with reduced gas prices and lower unemployment rates increasing the ability of households and companies to cope with higher debt payments.
- The FPC’s review concluded that banks were in a strong position to cope with domestic and overseas-generated shocks.
- The FPC’s report emphasized the need for money market funds, pension funds, and other major institutions to be more resilient during investor panic, to reduce systemic risk in the UK and the global financial system.
Conclusion
The Bank of England’s calls for tougher regulations governing non-bank finance companies and pension schemes underscore the need for greater oversight and regulation of the financial system to prevent future crises. While British banks remain resilient to further financial shocks, the global financial system is still adjusting to higher interest rates in the US, euro area, and the UK, which could lead to difficulties for some lenders.
The FPC’s report emphasized the need for increased resilience among non-bank lenders and called for money market funds, pension funds, and other major institutions to be more resilient during investor panic, to reduce systemic risk in the UK and the global financial system. However, it could be several years before the UK takes any action, as the FPC has stated that a consultation paper would not be published until later this year.