The Bank of England announced that it will subject non-bank financial institutions operating in the United Kingdom to stress tests in 2023, after discovering the risks of volatility in this sector.
In its periodic report on the stability of the financial system, Britain’s central bank (BoE, Bank of England) also called for “urgent action” by the international community to reduce the risks posed by such companies, which are varied and operate among many. Countries.
“Today, many commercial loans and other financial services are provided by financial institutions other than banks,” the Bank of England notes in the report, stressing that “the resilience of this sector needs to be strengthened.”
Non-bank financial institutions are those that provide financial services without a banking license, meaning that they are not subject to the same regulation and may include, among others, pension or private equity funds, insurance companies, credit institutions, and microfinance companies.
The Bank of England is targeting so-called liability investment funds (LDI), often used by pension funds, whose “weaknesses” were revealed in September during a period of instability in Britain’s sovereign debt, the bank says.
The bank recalls that, at the time, it “had to temporarily intervene in the government bond markets to allow funds to become more flexible”, since there were systemic risks.
At the same time, the institution recognizes that British banks, which are often subjected to “stress” tests, are ready to absorb the impact of a crisis “greater than now expected.”
The Bank of England also warned in the report that economic hardship caused by rising inflation and interest rates, among other factors, will make it more likely that citizens, businesses and governments will not be able to pay their debts.
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