LONDON Bank of England chief economist Andy Haldane said on Tuesday that frequent regulatory intervention may need to become the rule to stem risks from financial firms such as insurers and investment funds.
The British central bank has become more concerned that financial risks may have moved from banks to less regulated sectors, and Haldane's warning in a journal article follows similar comments last month from deputy governor Jon Cunliffe.
While there was a possibility that central banks' approach to regulation would return to the low-profile model common before the financial crisis, there was a strong case that more active regulation would be needed in future, Haldane said.
"It is likely that regulatory policy would need to be in a constant state of alert for risks emerging in the financial shadows, which could trip up regulators and the financial system," Haldane wrote in Central Banking Journal.
"In other words, regulatory fine-tuning could become the rule, not the exception."
Haldane said regulators would need to keep a close eye on whether insurers, pension funds and investment funds were exposed to too much market and illiquidity risk, which could cause bigger and more frequent swings in asset prices.
"These cyclical fluctuations could in turn be transmitted to, and mirrored, in greater cyclical instabilities in the wider economy," Haldane said.