French central bank urges liquidity stress tests for funds

PARIS (Reuters) – France’s central bank chief called on Wednesday for broad-based liquidity stress tests of investment funds to see whether they could cope with shocks in a financial crisis.

The amount of assets managed by non-bank financial actors has ballooned since the financial crisis of 2008 and 2009, leaving some regulators worrying about what would happen if liquidity suddenly dried up in a new crisis.

Although many funds already conduct stress tests internally, a recommendation last year from the Financial Stability Board for system-wide tests has found little traction so far.

Bank of France governor Francois Villeroy de Galhau said he regretted in particular U.S. resistance to the possibility of conducting broad-based, macro stress tests.

“To measure the global impact of shocks, we need in particular to have macro stress tests of liquidity, including for investment funds,” Villeroy said.

“These actors are potentially vulnerable to runs in case of a market shock if they are open and don’t have a way of capping buybacks,” Villeroy told a conference at the French central bank.

The head of the French financial markets regulator, Robert Ophele, said that without a U.S. commitment to the stress- testing of asset managers, it would be difficult to get a clear picture of contagion risk.

Against that backdrop, he said that rather than system-wide macro stress tests, it would be better to concentrate on more focused stress tests.

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