Bank of England highlights risks from non-bank financial institutions in market crises

The Bank of England (BoE) has released a study highlighting risks from non-bank financial institutions, such as pension funds and hedge funds, during a market crisis. The study indicates that asset fire sales by these entities could worsen financial shocks. The BoE's analysis involved over 50 financial institutions and modeled potential stress scenarios, revealing vulnerabilities in the non-bank sector. It noted that while some areas show resilience, non-banks could still amplify future market disruptions. In response, the BoE plans to introduce a repo facility to provide emergency funding to non-banks during crises. The findings come alongside the BoE's latest stress test results, which show that banks are well-capitalized and able to withstand economic challenges.