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(Refiles to correct spelling of Bank of Canada's Poloz inadvisory line)
By David Milliken and Huw Jones
LONDON, March 26 (Reuters) - The Bank of England said onThursday that it planned to quiz British asset managers aboutwhether they could cope with a flood of investors asking fortheir money back in times of market stress.
The central bank said it was concerned that some financialmarkets -- including those for fixed income assets -- may beless liquid than they looked, but that funds had promised theycould return investors' money at short notice.
The BoE has warned about potential fragile liquidity forsome time, but this marks the first time it has publicly askedinvestment funds how they could cope with sudden calls for cashfrom investors.
"The Committee remains concerned that investment allocationsand pricing of some securities may presume that asset sales canbe performed in an environment of continuous market liquidity,although liquidity in some markets may have become morefragile," the BoE said.
The call came in a quarterly statement from the BoE'sFinancial Policy Committee (FPC), chaired by Governor MarkCarney, which was set up two years ago to spot emerging risks toBritain's financial stability.
Risks now include a further slowdown in China's growth andGreece and its financing needs, the FPC said.
The central bank said it would work with the FinancialConduct Authority, another British regulator, to ask assetmanagers about their strategies for managing liquidity of theirfunds.
"This would inform assessment of the extent to which marketsare reliant on investment funds offering redemptions at shortnotice," the BoE said.
The regulators will also study why liquidity in some fixedincome markets has shrunk, amid accusations from banks that newtougher capital rules makes it too costly to hold large stocksof securities to trade.
Bank of Canada Governor Stephen Poloz said during a visit toLondon on Thursday that new regulation has made the financialsystem safer but has affected liquidity.
Regulation has "reduced incentives for banks and somedealers to hold inventory, act as market-makers and provide ashock-absorber function in times when volatility is high," Polozsaid.
Separately, the FPC said it would apply to British banks'Hong Kong assets a recent decision by Hong Kong regulators toset a counter-cyclical capital buffer of 0.625 percent. Thiswould take effect from Jan. 27, 2016, the BoE said.
The BoE said that risks to Britain from its housing markethad not increased since its last report in December, but thatsteps it took last year to guard against overheating remainednecessary.
Last year the FPC imposed limits on how many highloan-to-income mortgages lenders could issue -- putting thebrakes on rapid house price rises -- and asked banks to steadilyincrease how much capital they set aside to cover bad loans.
(Reporting by Huw Jones and David Milliken; Editing by SusanFenton)
