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UK banks can cope with no-deal Brexit and trade war - BoE

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UK banks can cope with no-deal Brexit and trade war - BoE

by David Milliken, Huw Jones

 

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FILE PHOTO: A bus passes the Bank of England in London, Britain August 4, 2016. REUTERS/Neil Hall/File Photo

 

LONDON, (Reuters) - - British banks hold enough capital to cope with a simultaneous disorderly no-deal Brexit and global trade war, the Bank of England said on Thursday as part of its half-yearly assessment of financial risks.

 

In an assessment that raised little in the way of new concerns, the BoE confirmed it would intensify its focus on risks such as illiquid investment funds, liquidity shocks, crypto-currencies and environmental dangers.

 

“The perceived likelihood of a no-deal Brexit has increased since the start of the year,” the BoE’s Financial Policy Committee said.

 

“The UK banking system remains strong enough to continue to lend through the wide range of UK economic and financial shocks that could be associated with Brexit,” it added.

 

Since the BoE’s last Financial Stability Report in 2018, Brexit has been delayed from March 29 to Oct. 31.

 

Prime Minister Theresa May has repeatedly failed to get parliament’s backing for her plan to ensure a smooth exit from the European Union, and the two main contenders to succeed her have said Britain may need to leave without a deal.

 

Businesses have said such a move would cause widespread economic disruption, and the BoE noted a sharp fall in foreign investors buying British commercial property and some company loans during early 2019.

 

Britain runs a large current account deficit with the rest of the world, and BoE Governor Mark Carney has previously warned that the country relied on “the kindness of strangers”, which could evaporate during market tensions.

 

“Financial stability is not the same as market stability. Significant volatility and asset price changes are to be expected in a disorderly Brexit,” the BoE said on Thursday.

 

Trade tensions between the United States and China had also increased global financial risks, especially against a backdrop of a rising number of heavily indebted companies in the United States, continental Europe and elsewhere, the BoE said.

 

The FPC said it would team up with a fellow regulator, Britain’s Financial Conduct Authority, to assess whether investment funds should be required to set lengthier withdrawal periods for investors if they hold hard-to-sell assets such as commercial property.

 

This follows the suspension in June of a fund from Neil Woodford, one of Britain’s best known money managers, after it was unable to meet demands from clients wanting to pull out their money.

 

The suspension was renewed indefinitely this month.

 

Valued at over 10 billion pounds at its peak, the fund has dropped to 3.5 billion pounds as managers sell assets to meet redemption requests once the fund reopens.

 

The BoE said its concerns centred on funds that focussed on illiquid assets such as commercial property and some corporate or emerging market bonds, rather than company shares that are easily traded.

 

The BoE also said it would look at the risk posed by the use of so-called ‘tokens’ and other assets used to make payments outside the mainstream financial system.

 

Last month Facebook (FB.O) drew worldwide interest when it announced plans to establish its own payment system, backed up by a currency it calls Libra.

 

Carney said the U.S. company should not expect its new Libra currency to benefit from the same unregulated free-for-all that helped the company achieve a dominant position in social media.

 

Banks’ ability to withstand liquidity shocks would also be put under the microscope later this year, the BoE said, though it added that it did not intend to tighten liquidity rules. The aim of the exercise was to look at ways to mitigate the spillover to other parts of the economy.

 

British-based banks already hold 1 trillion pounds in liquid assets to cope with a disorderly Brexit or other shocks.

 

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-- © Copyright Reuters 2019-07-11
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1 hour ago, snoop1130 said:

British banks hold enough capital to cope with a simultaneous disorderly no-deal Brexit and global trade war, the Bank of England said

Is that same certain as their capability to keep up the calue of the pound sterling?

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1 hour ago, Emdog said:

Somehow BoE saying financial system will not totally collapse doesn't reassure me all that much

Where do they say that?

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BoE’s part in Project Fear was unsuccessful and they cannot stop Brexit. It’s time for them to fess up.


Sent from my iPhone using Thaivisa Connect

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18 hours ago, Matzzon said:

 

British banks hold enough capital to cope with a simultaneous disorderly no-deal Brexit and global trade war, the Bank of England said. Is that same certain as their capability to keep up the calue of the pound sterling?

a) Anybody, who thinks, tthey are willing to spoil that for a politicians driven No Deal Brexit of a trade war ?

b) You think, ANY group of commercial banks will have that amount of money and willing to spoil that to defend the exchange rate of the British pound towards… THB, €uro, US$ ?

To give you an idea: when I studied international exchange rates and values of money, the US$ was going up and up, around 1985. The Bundesbank made public, they would stop the $ at 3DM and for that.. they had DM 3 BILLION to support the DM. Result: in a counpe of hours.. this amount was evaporated. As one of my professors said: the DAILY amount of US$ traded... is about $ 1000 billion. What you think these DM 3 billion = $ 1 billion will have as effect ?

Just a few years ago Draghi said: "they would defend the €uro, whatever. And I assure you, that will be enough". He had a total of € 750 Billion…, 10 x the amount Merkel and Hollande wanted to offer.

Get awake...

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45 minutes ago, puipuitom said:

a) Anybody, who thinks, tthey are willing to spoil that for a politicians driven No Deal Brexit of a trade war ?

b) You think, ANY group of commercial banks will have that amount of money and willing to spoil that to defend the exchange rate of the British pound towards… THB, €uro, US$ ?

To give you an idea: when I studied international exchange rates and values of money, the US$ was going up and up, around 1985. The Bundesbank made public, they would stop the $ at 3DM and for that.. they had DM 3 BILLION to support the DM. Result: in a counpe of hours.. this amount was evaporated. As one of my professors said: the DAILY amount of US$ traded... is about $ 1000 billion. What you think these DM 3 billion = $ 1 billion will have as effect ?

Just a few years ago Draghi said: "they would defend the €uro, whatever. And I assure you, that will be enough". He had a total of € 750 Billion…, 10 x the amount Merkel and Hollande wanted to offer.

Get awake...

I never said they should use money to defend the value of the same currency. That is always a dead option. What I am talking about is making choices that makes the country look 10% more trustworthy. What do you think would happen to a country´s currency if you build trust? That was not so hard, right? I return, wake up!

At the moment there is a circus going on in the Uk government. You can´t possibly have missed that? What do you think that does to the currency?

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20 hours ago, snoop1130 said:

British banks hold enough capital to cope with a simultaneous disorderly no-deal Brexit and global trade war

With the UK showing economic weakness in any trade deal with POTUS Trump, Trump likely to retaliate (despite his resignation) against the publicity of the UK's Ambassador's cables about Trump's character and denigrate Mays for not heading his advice on how to exit the EU, Trump will virtually insist that the UK "fall on its economic sword" in a very advantageous deal with the U.S.

UK Bank capital levels will be meaningless.

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21 hours ago, snoop1130 said:

Trade tensions between the United States and China had also increased global financial risks, especially against a backdrop of a rising number of heavily indebted companies in the United States, continental Europe and elsewhere, the BoE said.

“... against a backdrop of a rising number of heavily indebted companies in the United States...”

 

Those blurry trade wars... so easy to win... MAGA... 😁

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