In a stunningly honest turn of events - though likely self-preserving - a number of senior financial services executives are reportedly urged authorities around the world to bolster their crisis-busting arsenals amid fears that ultra-low interest rates have increased the risks of financial instability. As The FT reports, the heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement demanding policy-makers "address emerging market inefficiencies in the financial system, such as over-exuberance within asset classes." Policy-makers must “lean against something that is making people feel good but is actually going to give them a hangover they will find difficult to cope with."
Following warnings from The Fed's Janet Yellen that stock valuations are "quite high," and numerous more dire forecasts from the BIS (the central banker's central bank), The FT reports, the heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement backing the use of macroprudential tools, but warn that rules, if too narrowly applied, could push risks into the more thinly regulated realm of shadow banks...
The statement from finance chiefs including Douglas Flint, HSBC chairman, Anshu Jain, Deutsche Bank co-chief executive, Michel Liès, head of Swiss Re, and Larry Fink, chairman and chief executive of BlackRock, is being co-ordinated by the World Economic Forum.
It says the inclusion of macroprudential policies in policy makers’ tool kits “helps to address emerging market inefficiencies in the financial system, such as over-exuberance within asset classes, for example in real estate lending”.
In the words of Mr Flint, the policies have the capacity to “lean against something that is making people feel good but is actually going to give them a hangover they will find difficult to cope with”.
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The decision by finance chiefs to issue a joint endorsement of regulation is unusual, but it comes with caveats. The statement says that macroprudential policies need to be deployed across the financial system, not just on companies such as commercial banks that fall within the traditional regulatory perimeter.
Applying macroprudential measures only to regulated entities could “limit credit formation and push credit intermediation outside to the shadow banking sector and thus be a source of systemic risk”, the finance chiefs say, adding that the effectiveness of the tools has yet to be proven, especially in countries with complex financial systems.
The statement also argues that, if macroprudential tools are poorly co-ordinated, they could end up being a source of systemic risk in themselves. The US is among the markets with the most fragmented systems of governance — its regulation is split among multiple agencies, raising questions over the effectiveness of the country’s macroprudential regime.
