Reuters wrote last week that, "BoE's Hauser calls for new central bank tools to tackle market upheavals." The piece explains, "Financial markets are likely to be hit more often by the kind of upheaval unleashed by the COVID-19 pandemic and central banks need new tools to deal with powerful investment firms at the heart of such events, a Bank of England official said. Non-bank companies, which include pension managers, money market funds and hedge funds, now account for about half of the world's financial assets." They quote a recent speech from the Bank of England's Andrew Hauser, "Last year's COVID 'dash for cash' was a wake-up call as to the scale and urgency of this work." (See the full speech here: "Why central banks need new tools for dealing with market dysfunction.") Reuters explains, "Non-banks have helped savers and businesses as banks were reined in by reforms after their risk-taking brought about the 2007-09 financial crisis. But they failed to withstand the coronavirus shock in March and reforms are needed to prevent future liquidity problems threatening the economy, Hauser said. Central banks should consider a formal role as 'market makers of last resort' -- trading securities at times of financial panic -- in return for tougher regulation of financial businesses other than banks, he said." They add, "Last March's surge in demand for cash, as economies around the world went into lockdown, was exacerbated by chaos in normally stable debt markets. Non-bank firms -- some over-indebted -- scrambled to get money out of funds which in turn struggled to raise the cash. That helped cause a spike in government and corporate bond yields that threatened to deepen the hit to the global economy and forced central banks into huge emergency action, chiefly by ramping up their bond-buying programmes." Finally, Reuters tells us, "Non-banks also failed to function as intermediaries for government bond markets, which have soared in size since the 2007-09 financial crisis, Hauser said. Since March, the central banks of the Group of 10 (G10) nations have added $8 trillion to their balance sheets, mostly by buying government bonds. That has helped to bring down borrowing costs and allowed huge government spending to slow the economic slide, but adds urgency to the case for reform of non-banks, Hauser said. 'We should certainly be wary of drawing overly direct conclusions from the COVID pandemic, given how truly unique the circumstances have been,' Hauser said."

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