A recent statement by Andrew Hauser, Executive Director, Bank Of England, has shocked everyone to their cores. He said that the financial markets need to remain on their toes at all times. The ruckus caused by COVID-19 was just a wake-up call for all the financial lenders in the market to understand the scale and urgency of their work. He further mentioned in his Speech organized by Reuters that the financial markets are most likely to be hit by a similar kind of disturbance more often and they need to be prepared for such a situation. The central Banks should already develop tools to manage the investment firms who were largely hit and combat any upheaval.
The Hero during the pandemic was the Non-banking companies which majorly comprises the money market funds, pension managers, and hedge funds. These industries combined have kept the financial market up and now hold about half of the world’s total financial assets. These companies helped the savers and businesses stay afloat for the banks were reined in after their tendency to take risks caused the 2007-09 financial crisis.
Hauser further said that the non-banks could not withstand the commotion caused by the pandemic last March and so there is a need to bring in reforms to prevent liquidity problems in the future. These problems can disrupt the whole economy and the banks and NBFCs should learn from the pandemic and ready themselves for any other emergency that occurs.
Hauser also recommended the Central banks to take charge as the “market makers of last resort” to provide trading securities in case of any other financial panic that occurs. He remarked that this action of theirs would be just like the role that the Bank of England took on as the “lender of last resort” which helped the heavily regulated banking sector. The banks need to be more cautious and prepared for what comes next.
