No systemic risk found in Belgian non-bank financial intermediation: study
As of end September 2020, the non-bank financial intermediation sector in Belgium tallied €138bn of assets under management, consisting primarily of money market funds and non-equity investment funds, the report found out.
The Belgian market regulator FSMA and the National Bank of Belgium said, “as things stand currently, no substantial systemic risks have been identified in relation to asset management and non-bank financial intermediation.”
The report pinpointed that the Belgian public open-ended investment fund industry - worth €172bn of AuM as of end 2020 and representing about 90% of the local fund market - proved “overall strongly resilient” to the market developments seen in March 2020 during the Covid-19 market turmoil.
While some Belgian public open-ended investment funds saw large redemptions during this period, all redemption requests could be managed and none of these funds had to suspend redemptions, the report stresses. The “massive” adoption of liquidity management tools by the funds has provided them support.
The study’s risk metrics calculated for the Belgian investment funds (excluding equity funds) corroborate the idea that liquidity transformation remains the most important risk for all types of investment funds.
“It is essentially a redemption risk, linked to the fact that the liabilities of the funds are mostly composed of units redeemable daily and are not (fully) covered by liquid assets. The second most important risk for these investment funds relates to maturity transformation, as they invest to some extent in long-term assets financed with short-term liabilities. Maturity transformation mostly applies to fixed income and other funds as it is very limited for mixed and money market funds,” the report noted. However, the two risks remain relatively low “as long as the sector remains closely monitored and has access to efficient liquidity management tools to mitigate the risk of fire sales.”
Commenting on the report, NBB’s governor Pierre Wunsch said, “The vulnerabilities that appeared in March 2020 in certain sub-segments of the worldwide NBFI sector had a limited impact on the Belgian market. In line with the previous analyses, the NBB-FSMA report confirms once again that the Belgian market for asset management and non-banking financial intermediation can be considered fundamentally healthy. The crucial role of this sector in financial intermediation was thus never under threat.”