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Financial risks prompt Bank regulators into further action

BoE

Worries about the financial stability have prompted the Bank of England to look into how fund managers would cope with a sudden withdrawal of money.

The Bank of England's Financial Policy Committee said there were still threats to stability, including from a Greek default and China's economic slowdown.

Regulators want to ensure fund managers who control billions of pounds of assets are "alert to these risks".

The FPC is worried about liquidity if there is a rapid change in conditions.

Liquidity - the ease with which assets such as bonds and shares are bought and sold - "have become more fragile", the FPC said in its quarterly statement.

The FPC has asked the Bank of England and markets watchdog the Financial Conduct Authority to quiz fund managers on what their strategies are should they face a sudden need to sell assets because investors want their money back.

"The committee remains concerned that investment allocations and 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 FPC said.

"This would inform assessment of the extent to which markets are reliant on investment funds offering redemptions at short notice," added the FPC, whose role is to oversee the safety and stability of the financial system.

The regulators will also study why liquidity in some fixed income markets has shrunk, amid accusations from banks that new tougher capital rules makes it too costly to hold large stocks of securities to trade. A sudden financial shock would reduce the liquidity still further.

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