The blowup of the UK pension market has got regulators hunting for weaknesses in the over-$200 trillion shadow banking sector. In deciding what to police, the question is who’s exposed. That’s a blind spot, says aimeedonnellan. BVPredicts
A man holds an umbrella as he looks out at London's Canary Wharf financial district from Greenwich park, July 2, 2012. REUTERS/Andrew Winning
. The key to stopping a crisis isn’t locating the landmines – it’s working out who’s most likely to stand on them., the Bank of England had to launch a 65-billion-pound scheme to stabilise the market. Had it not done so, it said, the funds would have had to liquidate investments to meet margin calls on their loans. Panicked sales of bonds could have pushed borrowing costs up in the mortgage market, rippling through the wider economy.
Leveraged loans are also vulnerable to a similar fire sale. Before the pandemic, banks, hedge funds and other investors were happy to back corporate takeovers with high levels of debt. So-called open-ended funds, which make up 4% of the leveraged loan market, are a particular worry, because these allow investors to demand their money back, even though the fund’s assets might not be easily sellable.
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