Andrew Bailey, the sometime head of the Bank of England, sounded not just alarm, but despair. After two US collapses – First Brands and Tricolour – he’s concerned. In a press briefing focused on the failures, he said that these failures are indicative of larger problems across the financial system. The announcement comes at a critical time as we continue to monitor financial stability. Bailey emphasizes how important it is to approach this crisis as a local community “very seriously.”
Bailey then went on to compare the collapses to the 2008 financial crisis in deeply troubling ways. Emulating that time, too, there are a lot of unknowns yet about First Brands and Tricolour, he acknowledged. “I think the big question… is: are these cases idiosyncratic, or are they what I call the canary in the coalmine?” Bailey remarked. His comparison strikingly puts the question of whether these events are one-off occurrences or part of something deeper, a growing systemic threat.
Jamie Dimon, the CEO of JPMorgan Chase, joined Bailey’s call when he recently warned that these failures could be a sign of even greater turmoil to come. “My antenna goes up when things like that happen,” Dimon stated during a recent interview. He emphasized the need to keep a close eye on these developments.
In anticipation of these developments, the Bank of England is preparing to act. It will do a “stress test” of private equity and credit firms. This step definitely needs to be taken in order to measure the preparedness of these institutions with growing worries. Bailey further elaborated on the complex nature of current lending practices, describing trends in “slicing and dicing and tranching of loan structures” that could obscure underlying risks.
Still, even with intellectual caution, Bailey is honest enough to say the jury still is out on what it all means after First Brands and Tricolour’s deaths. I think that’s still a hugely open question in the US. I don’t disagree with [that] … I do think it’s a question we have to take very seriously,” he said. More importantly, he knew that these cases could seem small. When they do, they might expose large issues in private finance and assets sectors.
As Bailey looked back at the 2008 financial crisis, he pointed to previous crises. He cautioned that the public formerly considered sub-prime mortgage problems to be “too small to be systematic,” but history proved that assumption false. He urged that warning bells are going off today, exposing new threats to our financial ecosystem.
“And, you know, if you’re involved before the financial crisis, the alarm bells start going off at that point.” – Andrew Bailey
As more of these collapses happen, worries about a domino effect occurring from them are growing. Just as experts are imagining the worst, there is a stronger market stabilizing factors. As a result, tremendous uncertainty hangs over the US regarding future developments. The Bank of England is on high alert, proactively searching for and defending against threats to financial stability.