Daily Insurance Industry News
Daily Insurance Industry News
Tuesday 14th of August 2018
March 14, 2012

BoE warns on insurance industry “shadow banks”

by Gill Montia

Story link: BoE warns on insurance industry “shadow banks”

Speaking to insurance company heads yesterday, Bank of England deputy governor, Paul Tucker, highlighted the potential for insurance firms to build “shadow banks” within
their groups, for example through their securities lending business.

According to the deputy governor, “nothing must be done to jeopardise the essential functions of securities lending” which, he said, are key for any capital market to work efficiently.

However, Mr Tucker noted the challenge which the maturity transformation and leverage involved in collateral swaps presents to regulators as they seek to enhance the resilience of the system, given the invisibility of the market.

Addressing the need to put some structure around the market, and the Bank’s desire “in line with our traditions, to find market-led solutions where we can”, he went on to suggest one option might be to introduce a Trade Repository.

Mr Tucker also described the UK insurance industry as “something to be proud of” regarding its role in enhancing efficiency and welfare.

Reflecting on Solvency II, he said that the Bank and the Financial Services Authority were “dismayed by how much it is costing the industry and the regulator”.

Mr Tucker summed up: “We need to be wary of regulators drowning in masses of data going beyond anything they can get their hands round. Unless we are careful, it risks distracting supervisors from the big risks.”


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