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By Bloomberg

HSBC Holdings Plc Chairman Douglas Flint said the clampdown on banks’ trading arms by regulators is contributing to concern by the world’s biggest investors that liquidity could vanish in the event of a bond-market sell-off.

“We wanted banks to shrink their trading operations and they did,” Flint said at a conference organized by Swiss Re in Rueschlikon, Switzerland on Tuesday. “Now we’re worrying about how much more liquidity is available to long-term investors for their illiquid assets, and hence their appetite to take on such assets.”

Flint echoed the concerns of Aberdeen Asset Management Plc Chief Executive Officer Martin Gilbert, who oversees $112 billion in fixed-income assets, and BlackRock Inc., the world’s largest asset manager, which have both set aside more money to meet requests from clients to pull their funds in the event of liquidity drying up. Global bond markets have lost about $640 billion since the end of April, driven by a surge in volatility linked to the worsening Greek turmoil.

“We want capital markets to grow in Europe to reduce economies’ dependence on banks, but regulatory rules coupled with low interest rates have made both securitization less attractive and market-making more expensive,” Flint said.

Regulators have imposed higher capital requirements on banks to ensure taxpayers’ money will not have to be used again to prop up failing lenders. New rules also assign higher risk weightings to certain assets, including bonds, making them more expensive for banks to hold on their balance sheets. That curtails the ability of banks to act as middlemen, and has stoked the concern that asset managers won’t be able to find buyers for their bonds in a crisis.

“The bond markets are the areas that worry me the most,” Gilbert said in a Bloomberg Television interview Monday. “If there is any mass amount of money coming out of the bond market, how do we fund that, how do we sell bonds in a period where liquidity has really dried up?”