28 February 2007

BIS report on institutional investors, global savings and asset allocation

The BIS Committee on the Global Financial System released a report stating that Institutional investors are becoming more important in global financial markets, with their assets under management rapidly catching up with those of the banking system. The main focus of the report is how recent and prospective regulatory and accounting changes in several countries might influence the investment decisions of such investors. These changes include moves towards fair-value accounting in pension funds and insurance, risk-based solvency requirements for insurance companies and a call for more transparency in company accounts about pension commitments and funding positions.

The report concludes among others that while regulatory and accounting changes are increasingly global, their consequences are likely to differ significantly across different types of institutional investors and across countries as national conditions differ.

Although no major portfolio shifts have yet been observed at a global level as a result of recent accounting and regulatory reforms, data, analysis and market research suggest that recent regulatory reforms have had an impact on long-term interest rates in the United Kingdom.

Overall the reforms are expected to enhance the functioning and stability of the financial system. However, the design of regulatory reforms should take into account the possibility that such reforms may temporarily distort prices in financial markets and could drive long-term interest rates below the levels justified by macroeconomic fundamentals.

Households are becoming increasingly exposed to financial markets. Retirement incomes in the future may thus become more subject to financial market volatility. This suggests that financial supervision and regulation as well as consumer protection have an important role to play.

Press release
Executive summary
Report

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