Regulators Fail to Rein In Risk of Shadow Banking, Former BoE Official Says

Bank of England

U.K. financial regulators haven’t tackled risks adequately, ex-Bank of England governor Paul Tucker says, and now they should construct a “comprehensive” new policy.

Tucker said the BoE had been working inadequately on the “shadow banking” sector, which refers to a wide swathe of entities connected to banking, including bond funds, private lenders and companies working in crypto.

Tucker reportedly said the failure of the U.K. and other countries to address risks of shadow banking could come back to bite regulators eventually, a Financial Times (FT) report says.

He said there’s often more fragility there, and lightly-regulated bond funds and cryptocurrencies marketing themselves as “safe” places to bank could come apart easily.

In his estimation, the sector should instead look more into a “broad” policy which would compel companies behind safe investments to have liquidity insurance with BoE, so it’s possible to pay 100% of their short-term obligations instantly. Businesses wouldn’t be able to market themselves as safe if they didn’t have that insurance.

PYMNTS wrote recently about the earnings season for the U.K. “Big Four” banks — Barclays, HSBC, Lloyds and NatWest — which haven’t seen any huge losses.

Read more: Mounting Losses, SMBs and Digital Banking Define UK Big Four Performance in H1 2022

Barclays and Lloyds had a decline since last year, though NatWest and HSBC saw increasing profits.

Barclays’ decline is reportedly tied to the costs related to the bank issuing securities in excess of the amount registered under its U.S. shelf registration as of the end last year. There are also some regulatory concerns for the bank.

Meanwhile, HSBC has said its rise in share prices has been because it announced plans to resume quarterly dividends payments as of next year.

Lloyds has seen solid growth and has reportedly been working on being a digital lender, dividing up its retail and commercial business. And NatWest has seen success in commercial, institutional, retail banking and private banking.