Randy Kroszner outlines framework for innovation and stability

Randy Kroszner, an external member of the Bank of England’s Financial Policy Committee, sets out a practical framework for assessing risks from financial innovation while supporting growth and maintaining financial stability.

• Main framework and applications: Kroszner proposes analysing innovations through three familiar channels of leverage, liquidity, and interconnectedness, and applies this to stablecoins (including DeFi lending, backing-asset composition, and bank-coin/sovereign-coin nexuses) and private markets (highly leveraged PE-backed firms, NAV financing, dry powder, and growing links to banks and insurers), supported by system-wide exploratory scenarios (SWES) and new regimes for systemic stablecoins.
• Background and implementation details: The speech draws on his experience at the Federal Reserve and Bank of England, references the Financial Stability Report, notes global growth of private markets to about $16 trillion AUM with $4 trillion dry powder, highlights AI data center expansion in the Middle East financed by private credit, and describes tools such as the Digital Securities Sandbox, systemic stablecoin consultation, and SWES exercises to close data gaps and co-develop resilience with market participants.