LONDON, July 3 (Reuters) – The Bank of England said on Monday that banks may be underestimating their exposure to private equity and to commodity markets at a time when rising interest rates could squeeze liquidity in markets.
Nathanael Benjamin, the BoE’s executive director for authorisations and international banks, set out his priorities for the coming year.
“So we intend to closely monitor private asset financing, and it is important that firms think about those hidden risks they could face, including as they assess and set limits for large counterparty exposure,” Benjamin told a UK Finance event.
Scrutinising banks’ exposure to the interplay between commodity markets and climate change is another priority, Benjamin said.
“All banks, commodities house or otherwise, need to be up to the task of identifying those connections pro-actively, and anticipating when and where these risks could emerge, because ultimately when they crystallise for the broader economy, they crystallise for banks too,” he said.
He cautioned banks against moving into business areas not in their “DNA”.
“So firms need to ensure that their business as it currently exists is operationally resilient before growing or changing significantly, before venturing into new products or markets,” he said.
“And firms should plan for such growth with open eyes and a healthy dose of scepticism about the latest fad, lest they join the annals of firms that have over-extended themselves in the pursuit of growth.”
Reporting by Huw Jones
Editing by Peter Graff and Gareth Jones
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