LONDON Higher interest rates have so far not seriously undermined the global financial system, but "there is work to do" in tackling liquidity issues and hidden leverage in the non-bank sector, Financial Stability Board chair Klaas Knot said on Thursday.
The banking sector was in turmoil earlier this year as several U.S. lenders collapsed, including Silicon Valley Bank, and UBS was forced to take over Swiss rival Credit Suisse.
Knot, who is also governor of the Dutch central bank and European Central Bank policymaker, said the reasons behind difficulties at those banks were due to "idiosyncratic factors" and not systemic failures.
"In general the massive change in the interest rate environment, so far so good, there has not been any systemic rippling of negative effects into the financial sector," Knot told the Institute of International Finance annual meeting.
However, the non-bank financial intermediary (NBFI) sector, which now accounts for about half of global financial assets and includes investment funds, has had pockets of leverage coming to the fore which previously had not been spotted by regulators, Knot said.
"Why did we not see these pockets of hidden leverage? That, I think, is still the main target of our work in the NBFI space going forward," Knot said.
"The combination of liquidity mismanagement plus hidden leverage, that I think has given rise to the instabilities that we observed in the NBFI space... We are not done yet."
(Reporting by Huw Jones; Editing by Alex Richardson and Alexander Smith)
