Increasing the transparency of 'non-banks' such as pension funds is the first step in applying lessons from the turmoil in Britain's government bond market, Bank of England executive director Sarah Breeden said on Monday.
The central bank (BoE) was forced to intervene in the UK bond market in September after the £1.6 trillion LDI Investment fund sector used by pension funds to help ensure future payments faced challenges in meeting collateral calls after the previous government's tax cut plans sparked market turmoil.
The demand for transparency from the BoE covers the $200 trillion global 'non-bank' sector which is less regulated which consists of pension funds, insurance companies and various types of investment funds.
Breeden said the LDI issue was a reminder of the "systemic risk" posed by well-managed leverage in the non-banking system where there was "too often" excessive risk-taking coupled with improper liquidity risk management.
"Transparency is an important first step. This allows the next steps necessary to ensure the position and interconnection of non-banks with the entire financial system to be thoroughly tested and understood," continued Breeden.
Jiri Krol, head of global government affairs at AIMA, said there was a need to be smarter in measuring leverage, and a more holistic approach was needed from regulators around the world.
"We believe regulators need to obtain comprehensive data when it comes to monitoring financial stability and systemic risk management," said Krol.
Toks Oyebode, executive director for regulatory affairs at JPMorgan (NYSE:JPM) bank, said the measures outlined by Breeden and other regulators, such as on margins, are timely.
