Deputy Governor of the Bank of England Sarah Breeden warns of the danger of the stock market collapsing. Breeden stated In an interview with the BBCthat current share prices do not reflect the current state of the global economy.
“Asset prices are currently at an all-time high, even though there is a lot of market risk. We expect that at some point we will see a correction,” Breeden assesses the market situation. However, he did not specify when the correction movement would be seen or how big it would be.
It is very unusual for a senior official of the central bank to comment directly on market movements.
Shadow banks as a threat
According to Breeden, the biggest concern of the market is the simultaneous realization of several risks. Such risks could include a major macroeconomic shock, a loss of confidence in the unlisted debt market, and a level correction in the valuations of artificial intelligence companies and other risky investment targets.
The US stock market has recently reached several record high levels, even though, for example, the International Energy Agency (IEA) has warned that the world economy is facing the biggest energy shock in history as a result of the Iranian crisis and the rise in oil prices.
The Helsinki Stock Exchange, for example, also rose to its highest level since 2000 during April.
According to Breeden, another significant concern is related to the so-called shadow banking system, i.e. the unlisted debt market (private credit). It’s about actors who grant loans like banks, but are not subject to the same regulation.
“The unlisted debt market has grown from zero to $2.5 trillion over the past 20 years. This complex system has not yet been tested in a large-scale market downturn. That is why we are specifically worried about the credit crunch caused by the private sector, and not so much the crisis led by traditional banks,” Breeden estimates.