NCI: Liquidity regulation leading to 'sub-optimal outcomes' for fund investors

Risk moved from banking to asset managers

Regulation to control bank liquidity has had a disproportionately negative impact on smaller asset managers, according to a new report by financial thinktank New City Initiative.

The report entitled "The Conundrum of Liquidity Regulation" said changes to bank regulation following the global financial crisis transferred risk away from banks and towards asset managers instead.  It argued the "interconnectedness" had been underestimated by regulators with risk just getting moved between different areas of financial services.  "Regulatory changes imposed on the banking sector have pushed liquidity risk on the asset management industry by restricting asset-based or fund-based financing for redemptions. "This has prompted its own regulatory response: the prior ba...