BOE’s Bailey says tools need to improve to surveil non-banks

THE Bank of England needs to improve the ways it is able to track developments in the non-banking system, which is less transparent relative to the banking system, Bank of England governor Andrew Bailey said on Tuesday (Oct 22).

“We are going to reach a point and we are reaching a point…where we need to pivot from rule-making to surveillance” and improve the ways regulators can track financial dealings in the non-banking system, the official said at a Bloomberg event in New York.

He also said regulators need to improve how they provide emergency liquidity to non-banks, noting “non-banks don’t have a right to come to the central bank for liquidity, but there are times when we have to provide it, and I think we’ve learned that we have to provide it on a more systematic basis.”

Non-banks, which operate outside of traditional financial safety nets even as their importance in global finance has risen, have been a persistent concern of financial regulators around the world for some time.

Bank of England officials said over the summer the non-bank financial system had created excessive leverage that may be creating financial stability risks. The institution estimated half of funding for UK firms comes from financial markets and non-bank financial institutions, rather than conventional banks.

In his prepared remarks, Bailey said “we have seen a shift in financial intermediation towards non-banks – from money to finance, if you like, and this presents distinct challenges.” He added, there is a “pressing need for new surveillance tools” for spotting risk in the non-bank sector. REUTERS