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Global regulators sharpen focus on looser lending, Brexit risk

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Global regulators sharpen focus on looser lending, Brexit risk
FILE PHOTO: Federal Reserve Vice Chairman for Supervision Randal Quarles addresses the Economic Club of New York in New York City, U.S., October 18, 2018. REUTERS/Brendan McDermid/File Photo   -   Copyright  Brendan McDermid(Reuters)
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By Huw Jones

LONDON (Reuters) – Global financial regulators are developing a coordinated surveillance system to spot new threats from looser lending standards and high asset values, the chair of the Financial Stability Board (FSB) said on Tuesday.

The FSB groups central bankers, regulators and finance ministry officials from the Group of 20 economies (G20), and has largely completed work on reinforcing financial rules since the global banking crisis a decade ago.

In his first letter to G20 economic policymakers, its recently appointed head Randal Quarles said vulnerabilities were building up in the financial system and downside risks to global growth – including the prospect of a no-deal Brexit – were increasing.

“The FSB will continue to scan the horizon to identify and assess emerging risks… and will develop an explicit surveillance framework,” said Quarles, who became chair of the FSB in December and is also Federal Reserve Vice Chair for banking supervision.

“Loosening lending standards, elevated asset values, and high corporate and public debt call for particular vigilance.”

The FSB will evaluate the “global pattern of exposures” to collateralised loan obligations and leveraged loans to improve its understanding of the sector.

Quarles’ predecessor, Bank of England Governor Mark Carney, has likened the $2 trillion (1.53 trillion pounds) leveraged loan market to highly indebted companies to the subprime mortgages that defaulted 10 years ago and triggered the global financial crisis.

Quarles also said a disruptive Brexit could turn into a shock for the economy and create market volatility.

Britain is on course to leave the European Union on Friday, but Prime Minister Theresa May is asking the bloc for a delay until at least the end of June to avoid a no-deal departure.

“The FSB is monitoring developments and if necessary will advise G20 ministers and governors on risks, should they crystallize,” Quarles said.

The FSB will also identify possible gaps in regulating crypto-assets, analyse the implications of big tech companies expanding in financial services, and develop effective ways for financial firms to recover from cyber attacks.

(Reporting by Huw Jones; editing by John Stonestreet)

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