By Huw Jones
LONDON (Reuters) -Patchy progress on implementing reforms to earn money market funds and different varieties of “non banks” safer has left the worldwide monetary system susceptible to extra shocks, the G20’s danger watchdog mentioned on Monday.
The Monetary Stability Board mentioned that lots of the underlying vulnerabilities that contributed to incidents, reminiscent of central banks having to inject liquidity to stabilise cash market funds throughout a “sprint for money” on the outset of COVID-19 lockdowns, are nonetheless largely in place.
Progress by G20 international locations on implementing reforms to funding funds, margining and liquidity set out by the FSB has been uneven, and “we might already be dropping momentum”, FSB Chair Klaas Knot mentioned in a letter to G20 central bankers and finance ministers assembly in Brazil this week.
Non-banks, which embody insurers, non-public fairness, hedge funds and different funding funds, now account for nearly half of world monetary property.
“To reinforce the resilience of the worldwide monetary system, it’s important that we finalise NBFI (non financial institution monetary intermediation) reforms and strongly commit ourselves to full and well timed implementation,” Knot mentioned.
Progress is hampered by the varied nature of the worldwide sector, and lack of ability to get a full image attributable to patchy knowledge.
Nonetheless, the funding fund sector has been lobbying closely in opposition to a few of the reforms, arguing that many components of the market got here underneath stress throughout COVID.
There’s additionally some debate between central banks, who wish to keep away from intervening in markets to fill liquidity shortfalls at funding funds, and securities watchdogs over how far to manage non-banks.
However Knot mentioned the FSB would press forward with a brand new spherical of rule-making and suggest by year-end how regulators may take care of leverage in non-banks reminiscent of broker-dealers, hedge funds, finance corporations and securitisation automobiles.
“An formidable coverage method is important to mitigate the monetary stability dangers related to leverage,” Knot mentioned.
Increased rates of interest imply that actual property “market vulnerabilities bear shut monitoring”, he added.
