LONDON (MNI) – Financial markets are going through a period of
over-pessimism similar to that of the 1930s, Bank of England Executive
Director Financial Stability and Financial Policy Committee Member
Andrew Haldane says today.
Haldane sets out ways in which the new FPC could take action to
counter this ‘risk-off’ attitude in markets.
“Memories of financial disaster are now fresh, as after the Great
Depression, causing an over-estimation of the probability of a repeat
disaster. In these situations, psychological scarring is likely to
result in risk appetite and risk-taking being lower than reality might
suggest”.
Haldane says that this mood may be “retarding the recovery” and
says new policy approaches may be needed to ease the markets’
nervousness.
“The FPC, like the MPC, needs to act symmetrically in response to
these developments. Its job is to cushion the fall as well as arrest the
rise in credit and debt.”
Opportunistic raising of capital by banks, as recommended by the
FPC in June, is one way, he says, but it should also communicate about
the possible over-pricing of risk and push for changes in regulation to
‘lean against the wind’.
“As in the 1930s, macro-prudential policy may have a role to play
in shouldering the heavy burden of damaged balance sheets and diminished
risk appetites”.
–London newsroom 0044 20 7862 7499; email: ukeditorial@marketnews.com
[TOPICS: M$$BE$,MT$$$$]
