Regulators need to “up their game” in overseeing hedge funds and shadow banks as risky pools of capital build up beyond the heavily scrutinized world of traditional banking, one of the world’s top central bankers has warned.
Paul Tucker, the Bank of England’s outgoing deputy governor, said in an interview with the Financial Times that it would be “absolutely disastrous” if the economic fragility of banks was recreated outside the mainstream banking sector.
He drew an explicit parallel between the current situation and 2004, when super-low rates sowed the seeds for a search for yield that culminated in the crash of 2007-09.
“The west is in the course of repairing itself from the past crisis; the Western world needs to be very careful that it doesn’t brew another one,” he said. “This is exactly what happened in the first part of the last decade.”