Andrew Bailey, the new Governor of the Bank of England, was scathing. He’s now worried about the recent failures of First Brands and Tricolour. He was giving evidence at a session of a House of Lords select committee. He proposed that these repeated failures are indicative of more systemic issues with the financial regulatory system. Bailey stressed that it’s critically important to keep a close eye on these developments. He said that alarm bells were ringing in reaction to what happened.
Bailey acknowledged that there’s still a lot that’s unknown about the situation with First Brands and Tricolour. Of course, he was asking critical questions about these frivolous cases. Are they one-off events, or do they expose systemic latent vulnerabilities lurking beneath the surface of our financial system?
“I think the big question… is: are these cases idiosyncratic, or are they what I call the canary in the coalmine?” – Andrew Bailey
The Governor noted that we have heard similar sentiments before, during the onset of the 2008 financial crisis. He remembered how some once thought sub-prime mortgages were “too small to be systematic. In retrospect, he said, that estimation turned out to be an incredibly serious misjudgment. Bailey remarked on the significance of loans made by private credit firms, describing them as involving “slicing and dicing and tranching of loan structures,” which can complicate risk assessment.
In reaction to these developments, Bailey announced a bold vision. Near term The Bank of England will run a new style stress test focusing on the private equity and credit industries. He acknowledged that the current situation warrants serious attention, stating, “My antenna goes up when things like that happen,” highlighting his cautious approach in assessing potential risks.
JPMorgan Chase CEO Jamie Dimon weighed in on the situation, warning that the failures of First Brands and Tricolour could be indicative of further challenges in the financial sector. Higgins made Bailey’s comments more alarming by implying that there is a new, ominous level of alarm regarding these new developments.
“And, you know, if you’re involved before the financial crisis, the alarm bells start going off at that point.” – Andrew Bailey
As the conversation about the stability of various financial institutions unfolds, Bailey underscored the imperative to treat these occurrences with gravity. He communicated that if you see “one cockroach” that likely means there are a lot more roaches hiding underneath the surface of the system.
“Are they telling us something more fundamental about the private finance and private assets sector?” – Andrew Bailey
