The Bank of England has issued letters to bank CEOs – warning them that they are accruing large, unmanaged risks to non-bank financial institutions. Hedge funds, pension funds and other non-bank financial institutions with material funding from UK banks may be wise to look at their funding diversification, and back-up options in case their bank-provided funding/leverage provided reduces.

Banks may also look to sell down some existing exposure.

Banks are seen by the Bank of England’s Prudential Regulation Authority (PRA) as taking large and concentrated counterparty exposures, without fully understanding the risks that could arise from these. This PRA focus was initially largely instigated by the default of Archegos Capital Management.