The Bank of England’s Financial Policy Committee has called for information to be gathered from money managers in the U.K. about their strategies for managing the liquidity of portfolios in normal and stressed scenarios.
In a statement Thursday, following Tuesday’s committee meeting, the FPC said it had asked the Bank of England and the U.K.’s Financial Conduct Authority to work together to gather this information to “inform assessment of the extent to which markets are reliant on investment funds offering redemptions at short notice.”
The FPC has asked for a full report of the findings at its meeting in September, with an interim report due in June.
At the Tuesday meeting, the FPC reviewed its assessment of risks to financial stability. It focused on international and geopolitical risk, low nominal growth in the eurozone, the potential for a further slowdown in China, the effects of diverging monetary policy, and the continued risks in relation to Greece “and its financing needs,” the statement said.
“Any of these risks could trigger abrupt shifts in global risk appetite that in turn might lead to a sudden reappraisal of underlying vulnerabilities in highly indebted economies, or sharp adjustments in financial markets,” the statement said.
The FPC remains concerned that investment allocations and the pricing of some securities “may presume that asset sales can be performed in an environment of continuous market liquidity, although liquidity in some markets may have become more fragile.”
The statement highlighted that trading volumes in fixed-income markets have fallen relative to market size, and that sudden changes in market conditions can occur in response to “modest news.”
The FPC also asked the Bank of England and the FCA to encourage and contribute to international work to address gaps in data. It wants to build a “common understanding of vulnerabilities in capital markets and asset management activities.”