The Bank of England may need to become more involved in managing the market to cope with ever-increasing business cycles in financial services, Chief Economist Andy Haldane has warned.
Shrinking banks have switched their attention to pension funds, insurers and mutual funds, which may lead to more, and deeper, cycles in coming years, says Haldane. Extensive assets built up by insurance companies also a concern. But Haldane said the is confident that, with sufficient regulation, future crashes can be avoided.
“These cyclical fluctuations could in turn be transmitted to, and mirrored, in greater cyclical instabilities in the wider economy,” Haldane wrote in an article for the Central Banking Journal yesterday.
“It is likely that regulatory policy would need to be in a constant state of alert for risks emerging in the financial shadows, which could trip up regulators and the financial system. In other words, regulatory fine-tuning could become the rule, not the exception.”