Emerging market meltdown threatens UK financial system, says Financial Conduct Authority boss Andrew Bailey
A meltdown in emerging markets could threaten the UK’s financial system, the head of the Financial Conduct Authority said.
Andrew Bailey, chief executive of the City watchdog, warned that a crash in emerging economies with “debt-sustainability issues” is a risk as the post-crisis period of low interest rates concludes.
The warning came as emerging market stocks fell for the fifth week in a row, and Wall Street's S&P 500 index closed 2.8 per cent down on Friday.
“We are seeing a world where there are some growing risks in emerging markets,” Bailey said in an interview with The Sunday Times.
“We are now seeing some normalisation of monetary policy in a number of areas — obviously in the US,” he told the newspaper.
“We do have to watch what the effect of that is on some emerging markets, particularly ones that may have debt-sustainability issues, some that have large dollar debt outstanding.”
Bailey added that the financial system was better prepared to cope with potential shocks than at the time of the global financial crisis in 2008.
Earlier this month the International Monetary Fund warned of a potential emerging markets crisis in its Financial Stability Report.
“An intensification of concerns about emerging markets, a broader rise in trade tensions, the realisation of political and policy uncertainty, or a faster-than-expected tightening in monetary normalization could all lead to a sharp tightening in financial conditions,” the organisation said.