Fed’s Quarles says pandemic stresses highlighted fragility in nonbanks By Reuters

© Reuters. Quarles, vice chairman of the Federal Reserve Board of Governors, testifies before a Senate Banking, Housing and Urban Affairs Committee hearing in Washington

© Reuters. Quarles, vice chairman of the Federal Reserve Board of Governors, testifies before a Senate Banking, Housing and Urban Affairs Committee hearing in Washington

By Pete Schroeder WASHINGTON (Reuters) – U.S. Federal Reserve Vice Chair Randal Quarles said Tuesday that the market stresses created by the coronavirus pandemic showed the nonbank financial system is “significantly more fragile” than its traditional counterpart. Quarles said that while decisive action from central banks and regulators helped ease market turmoil, recent events have shown global regulators have “work to do” to shore up nonbanks, including improving resiliency in money market funds. Speaking in his capacity as head of the Financial Stability Board, Quarles did not lay out precise policy prescriptions, but rather said the global regulatory group is hard at work examining the issue and expects to lay out recommendations soon. “Addressing vulnerabilities in the financial system going forward…will require a holistic perspective given the various linkages within nonbank financial intermediation and between nonbanks and banks,” he said, according to prepared remarks. “We have gained some clarity regarding areas of the market that needed significant bolstering and have to look closely at whether and how resilience in these segments can be improved.” The rapid onset of economic lockdowns and market stress revealed some flaws across the market, he added, particularly as companies worldwide scrambled for cash, specifically U.S. dollars. For example, margin calls appeared to be larger than expected for some firms, leading to stretched liquidity. And the stress raised new questions about the functioning and resilience of core government debt markets, particularly when it comes to the ability of private parties to intermediate in those markets. Quarles noted that markets returned to normal thanks to massive intervention by central banks across the globe, addressing the immediate issue but raising longer-term questions.
“While swift and decisive policy action succeeded in calming markets, this does not mean that our work is complete. While central bank action succeeded in restoring market functioning, this support does not address the underlying vulnerabilities,” he said.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.


Source link