Bank of England's Bailey Urges Strengthening of Market Finance Resilience

Urgent Need for Financial Resilience

LONDON, Jan 27 (Reuters) - Bank of England Governor Andrew Bailey said he sees "a particular and urgent need" to strengthen the global resilience of market-based finance such as private credit against economic shocks.

Overview of Market-Based Finance

"The sector is very large and fast-growing. It is disparate in nature and opaque in important places, meaning that the international interlinkages are, perhaps unsurprisingly, complex and hard to observe," he wrote in an article published on Tuesday by The Banker, an industry magazine.

BoE's Stress Test Initiative

In December, the BoE launched what it calls a stress test of the private equity and private credit industries, which will report back early next year.

Bailey's Perspective on Stability and Growth

The focus of the test is on broader impacts on the economy rather than the health of specific firms - most of which the BoE does not directly regulate, unlike banks.

Regulatory Changes and Their Implications

Bailey also repeated his view that there was "no trade-off between stability and growth".

"Just because the banking system is in a far more resilient position now than in the past is no reason to rest on our laurels. The challenge now lies in managing risks that sit beyond the banking perimeter as well as identifying and understanding new interconnections between banks and non-banks," he wrote.

Last year, finance minister Rachel Reeves described regulation as a "boot on the neck" of British businesses, and President Donald Trump's administration is also considering relaxing capital rules for banks.

The BoE lowered some of its capital requirements for banks for the first time since the global financial crisis in December, which it justified on the basis that other rules were now tougher and that British banks were smaller global players.

(Reporting by David Milliken, Editing by Paul Sandle)