Plus, the Bank is undertaking a stress test to probe how nonbanks would react to extreme potential stress in the markets — the first of its kind. Results are due later this year, which could prompt tougher rules
Solutions
But given the nonbank risks are inherently global, the U.K. central bank may be acting in vain. Really it needs the likes of the Financial Stability Board (FSB), a global watchdog, or its counterparts, to take immediate action.
That question of debt, and where it could blow up markets, is increasingly at the heart of the global reform agenda. It could mean a crackdown on how certain financial players use borrowing to juice returns — to stop the next explosion from reverberating globally.
“Excess leverage and illiquidity are typically at the heart of most failures, so you’d expect these to be areas of regulatory focus,” said Conor MacManus, director of financial services risk and regulation at PwC.
The FSB, through a group co-chaired by U.K. markets regulator Sarah Pritchard, will produce a consultation on leverage, where the aim will be to deal with the root of the problem, rather than just whenever it turns into a calamity.
That’s not coming until December, though, and would be unlikely to turn into final policy for quite some time — not quite the urgency the Bank needs.
