Question to the HM Treasury:

To ask Her Majesty's Government what assessment they have made of the risks to the economy of shadow banking.

Non-banks are a growing area of the global and UK financial system. While they help to diversify the provision of finance to the economy, they may also pose risks. Recognising this growth, the Office for Budget Responsibility’s 2019 Fiscal Risks Report assessed some of the risks of shadow banking.

The Chancellor requested in March 2020, as part of the remit letter to the Bank of England’s Financial Policy Committee (FPC), that the FPC publishes a detailed assessment of the oversight and mitigation of systemic risks from the non-bank sector.

The FPC published the preliminary findings of this assessment in the August 2020 Financial Stability Report. It highlighted that, as observed in the March 2020 ‘dash for cash’, some non-banks may be vulnerable to liquidity shocks. The report outlined further work to address these risks, both domestically and internationally. The FPC will follow this with a more detailed report in 2021 outlining gaps in, and potential measures that may be taken to increase, non-bank resilience.

Alongside this, HM Treasury and the financial regulators are working internationally at the G20’s Financial Stability Board (FSB) to understand and address the vulnerabilities of the non-bank sector. The FSB has recently published assessments of the risks from non-banks in the ‘Holistic Review of the March Market Turmoil’ (November 2020) and the ‘Global Monitoring Report on Non-Bank Financial Intermediation’ (December 2020).