THE scale of the big global asset management companies means distress at one of these institutions could aggravate financial market frictions, a Bank of England policy-maker has warned.
Andy Haldane, executive director for financial stability at the Bank, considered whether the fast-growing asset management industry posed the same "too-big-to-fail" challenges as the banking sector in a speech in London yesterday.
Mr Haldane said the risks were different to those in banking because asset managers did not bear credit, market and liquidity risk on their portfolios.
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But he added: "Even if the 'fail' element of too-big-to-fail is a red-herring, the 'big' is not. Distress at an asset manager may aggravate frictions in financial markets, in particular frictions in market liquidity. One example would be an asset fire sale. This might arise if assets from a failing fund were offloaded at a pace and scale that caused indigestion in the underlying market. If so, asset prices would be driven south, possibly to well below their long-term or fundamental value."