BoE’s Hall proposes policies to tackle ‘dash-for-cash’ risks

Central banks could offer repos to “broad array” of counterparties, FPC member says
Jonathan Hall
Bank of England FPC member Jonathan Hall
Bank of England

Regulators worldwide should develop new policies to tackle the risks exposed by the “dash-for-cash period” of March 2020, the Bank of England’s Jonathan Hall said on May 19.

Hall, a member of the financial policy committee, noted markets had “recovered strongly” from the intense period of stress, when investors rushed to sell assets and acquire dollar cash. “However, despite the broadly positive backdrop there have been a number of isolated incidents which indicate that the highlighted vulnerabilities remain,” Hall said in remarks at the Cardiff Business School.

He offered six policy proposals for global regulators to consider. First, they should take steps to increase transparency and reduce pro-cyclicality in margin calculations, he said.

Regulators should reform money market funds to ensure they can continue to perform under stress, or are no longer considered “cash-like investments”, Hall added. They should also tackle risks in open-ended funds, making sure redemption terms match liquidity.

More broadly, regulators should always analyse market structure in the context of liquidity conditions “in bad times as well as good”, Hall said. They could also consider actions to cut “jump-to-illiquidity” risk, when some firms cease to offer prices during stressed conditions.

Lastly, central banks should look at their own tools, he said, “including exploring offering central bank government bond repo, with very high haircuts, to a broad array of counterparties that meet appropriate standards”.

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