“Investment banks, which traditionally supported liquidity in times of stress, have been shrinking their activities. Corporate bond inventories have fallen by 75pc in the US and 50pc in Europe since 2007, according to IIF data. While much of this has been driven by banks unwinding large credit books, regulation has also discouraged them from holding large quantities of bonds that could help cushion violent swings in prices. Mr Adams said a ‘dramatic revolution’ of the players and risks of market making had also pushed risk ‘out into the shadows’ of non-bank lending. Mr Adams warned that the US Federal Reserve’s first interest rate rise in almost a decade would also cause disruption.”
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