00:00Predicting the next economic crash or financial crisis has always been more art than science.
00:05Today, there is an added complication.
00:07As we're talking about, the rise of private markets has obscured the data which regulators
00:11and economists rely on to identify risks in the global economy.
00:15It's the subject of today's Bloomberg's Big Take, which was co-written by Laura Noonan,
00:19Bloomberg's global finance reporter, who's with me now.
00:23Always good to speak to you.
00:24So what can regulators do to stress test the system if they are flying blind because of lack of data?
00:31Morning, Francine. Thanks for having me. That's a great question.
00:34Regulators have really been grappling with this for the last couple of years
00:37because they know that their powers are limited.
00:40So what the Bank of England has been trying to do here in the UK is just go out and
00:44ask firms
00:45to voluntarily provide information which they don't legally have to provide at this point.
00:50And that's their pioneering approach, which they've been trying to do.
00:53But it does rely on goodwill from the industry.
00:56And the way you kind of scare them slash convince them to do that is you say,
01:00well, listen, if there is a problem lurking somewhere, would you not rather know about it?
01:04And that's been one of the approaches.
01:06So how deep, I guess, are these unseen ties between private credit and banks?
01:11Pretty deep. I mean, in the US, they did some data showing that there was $2.2 trillion
01:16of lending and commitments from banks to other financial institutions, which is a lot.
01:22The problem is the links are complicated and it's difficult to really understand what's underpinning them.
01:27So, yeah, one of the concerns has been just that there could be an issue in the non-bank sector,
01:32which then hits the banking sector.
01:34That's a feedback loop.
01:35But that is one of a number of financial stability potential feedback loops that could come from these markets.
01:41So how can regulators, what can they do about these risks?
01:44One of the main reasons we're seeing such a huge focus around data is that anyone who follows international policy
01:49making will know
01:50there's not exactly a good market for making new rules right now.
01:53They know that if they try to regulate, in a traditional sense, private markets,
01:58there is not political will to do that.
02:00It's all about deregulation at the moment.
02:01So what they're trying to do is shine a light and hoping that by shining a light on dangers as
02:07much as they can through data,
02:09the market will take care of itself.
02:11That's the hope.
02:12Laura, I mean, this is a fundamental, like, I think it's a really deep question,
02:16is that there is definitely, like, a move towards deregulation.
02:19Yes.
02:20But overall, like, how much of the regulation we have, especially in the UK where they've been quite cautious,
02:25is it, you know, it protects people?
02:27It protects, as the previous guest said, it does protect retail investors from some of these problems in theory.
02:33A lot of their pension funds are actually already there through institutional investors.
02:37So I think caution in this area, I don't think caution really protects people
02:42because there are major issues around things like valuation and private markets.
02:45So it's not just about price discovery.
02:47It's about how do you value that building that you own and what's the governance around that.
02:51And there are massive issues around transparency.
02:54And I think having clear, transparent data, it would be a big help in uncovering some of these risks.
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