At a Treasury select committee hearing last week, Professor Charles Bean was quizzed on whether a future correction in oil prices could spark another credit crunch due the over-exposure of pension funds, investment banks and hedge funds to the futures market.
Bean said: “For some institutions, it could generate a not insignificant financial loss and worsen their balance sheets. Like all asset price corrections, it may have macroeconomic implications.”
He warned of the inflationary risks of workers pushing for pay increases and forecast further market volatility. He pointed to the danger of global economic slowdown prompting a second round of writedowns but this time on corporate loans.