Makhlouf warns on risk to financial system from non-bank sector

• Published date: 16 April 2024
• Author: EOIN BURKE-KENNEDY
• Publication title: Irish Times (Dublin, Ireland)

Central Bank of Ireland governor Gabriel Makhlouf has highlighted the risks posed to the global financial system from funds and other non-bank vehicles, calling for greater global co-ordination among policymakers and regulators

Speaking in advance of the International Monetary Fund (IMF) and World Bank spring meetings in Washington this week, Mr Makhlouf noted that certain types of funds and their risk strategies had amplified recent financial shocks.

It was important that policymakers addressed “systemic risks” from the non-bank sector, he told a conference on capital markets and financial stability hosted by the IMF.

“History has shown us the potential for certain cohorts within the funds sector globally to amplify adverse shocks – we cannot forget the lessons of the global financial crisis, the Covid-induced market shock of March 2020, and the UK’s recent LDI [liability-driven investment] issues.”

Highlighting vulnerabilities

Former British prime minister Liz Truss’s announcement of unfunded tax cuts in September 2022 triggered a big sell-off of UK government bonds and a liquidity scare across the pension sector, highlighting vulnerabilities in nonbank financial institutions.

The episode prompted calls for greater regulation.

“Globally, the nonbank sector has grown rapidly over the past decade, and Ireland has one of the largest funds industries in the world with around €4.5 trillion in assets under management,” Mr Makhlouf said.

“It is playing an increasingly important role in the global financial system and real...