Daily Management Review

The Bank of France Chief Calls For ‘Liquidity Stress Tests’ For ‘Investment Funds’


04/26/2018


In order to gage the capacity to handle crisis, ere the liquidity dries up in the face of a “new crisis”, the Central Bank of France urges for “liquidity stress tests”.



The Central Bank’s chief of France, on Wednesday, 25 April 2018, called for investment funds’ “broad-based liquidity stress tests” in an attempt to gather their capacity to deal with “shocks in a financial crisis”.
 
Following the financial crisis of “2008 and 2009”, the number of “non-bank financial actors” managed assets has soared up, whereby heightening concerns of “some regulators” in fear of sudden drying up liquidity in the face of a “new crisis”. The Financial Stability Board recommended last year a “system-wide tests”, even though “many funds” have internal mechanisms in place to “conduct stress tests”. However, the tests conducted by the Financial Stability Board have “found little traction so far”.
 
The Governor of Bank of France, Francois Villeroy de Galhau, expressed his regret on the resistance of the U.S. towards the idea of “broad-based, macro stress tests”. In his words:
“To measure the global impact of shocks, we need in particular to have macro stress tests of liquidity, including for investment funds”.
“These actors are potentially vulnerable to runs in case of a market shock if they are open and don’t have a way of capping buybacks”.
 
While, the Head of the “French financial markets regulator”, Robert Ophele is of the opinion that if the refusal of the U.S. towards committing the “stress- testing of asset managers” would pose difficulty in getting a “clear picture of contagion risk”. However, in reference to this, Ophele also stated that “rather than system-wide macro stress tests, it would be better to concentrate on more focussed stress tests”, as per Reuters’ report.
 
References:
reuters.com







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