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Greece poses risk to UK financial system, says Bank of England Greece poses risk to UK financial system, says Bank of England
(35 minutes later)
The precarious position of Greece could pose a risk to the financial system, the Bank of England warned, as it pledged to intervene to insulate the UK from potential shockwaves caused by any escalation in the eurozone crisis. The precarious position of Greece could pose a risk to the financial system, the Bank of England has warned, as it pledged to intervene to insulate the UK from potential shockwaves caused by any escalation in the eurozone crisis.
Setting out its half-yearly assessment of the risks to the UK financial system, the Bank said the outlook remained unchanged over the last six months until the last few days, when Greece closed its banks and then failed to repay a $1.5bn (£1.1bn) loan to the International Monetary Fund. Setting out its half-yearly assessment of the risks to the UK financial system, the Bank said the outlook remained unchanged over the last six months until the last few days, when Greece closed its banks and then failed to repay a €1.5bn (£1.1bn) loan to the International Monetary Fund.
On Wednesday, the Bank said it had been working with the Treasury, the Financial Conduct Authority and European counterparts to put in place contingency plans to tackle the situation in Greece, which has crystallised in recent days but been a focus for policy-makers for the last five years. On Wednesday, the Bank said it had been working with the Treasury, the Financial Conduct Authority and European counterparts to put in place contingency plans to tackle the situation in Greece, which has crystallised in recent days but been a focus for policymakers for the last five years.
Related: Greece debt crisis: Alexis Tsipras reportedly backs down – liveRelated: Greece debt crisis: Alexis Tsipras reportedly backs down – live
“The UK authorities will continue to monitor developments and will take actions required to safeguard financial stability in the United Kingdom,” the report said. It did not immediately provide any information about the contingency arrangements.“The UK authorities will continue to monitor developments and will take actions required to safeguard financial stability in the United Kingdom,” the report said. It did not immediately provide any information about the contingency arrangements.
The report was compiled after the latest quarterly meeting of the Bank’s financial policy committee (FPC), set up after the banking crisis to try to look for potential bombshells that could affect the UK’s financial stability. The FPC met last week – before Greece missed its crucial debt repayment – but at the time had regarded the risk from Greece to the financial system as “particularly acute”.The report was compiled after the latest quarterly meeting of the Bank’s financial policy committee (FPC), set up after the banking crisis to try to look for potential bombshells that could affect the UK’s financial stability. The FPC met last week – before Greece missed its crucial debt repayment – but at the time had regarded the risk from Greece to the financial system as “particularly acute”.
The Bank is concerned that the Greek situation could force investors to reconsider the risks of other investment they hold, which in turn could dry up liquidity in markets, making it harder to buy and sell financial products. The Bank is concerned that the Greek situation could force investors to reconsider the risks of other investments they hold, which in turn could dry up liquidity in markets, making it harder to buy and sell financial products.
“The situation remains fluid. The FPC will continue to monitor developments and remains alert to the possibility that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” the report said.“The situation remains fluid. The FPC will continue to monitor developments and remains alert to the possibility that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” the report said.
The report sets out six main risks to UK financial stability It sets out six main risks to UK financial stability
• The global environment, not just in Greece but also in emerging markets such as China and Hong Kong The Bank of England found direct exposures of UK banks to Greece were very small, but exposures to peripheral eurozone economies was more significant, amounting to 60% of the major banks’ crucial capital ratios. In terms of China, Hong Kong and other emerging markets the exposure was even higher, at three and a half times the capital buffer.
• The reduction of market liquidity in some markets
• Britain’s current account deficit, which at 5.5% is “large by historical and international standards”
• Its housing market, which the FPC “continues to monitor closely”, particularly the growing buy-to-let sector
• The £30bn of fines paid by banks since the 2008 financial crisis which has prompted the Bank to include future estimates of penalties on the sector to be included in the stress tests at the end of the year
• Cyber-attacks, which has prompted the Bank to recommend regular assessments of firms’ IT resilience.
The Bank of England found direct exposures of UK banks to Greece were very small, but exposures to peripheral eurozone economies was more significant, amounting to 60% of the major banks’ crucial capital ratios. In terms of China, Hong Kong and other emerging markets the exposure was even higher, at three and half times the capital buffer.
“A sharp slowdown in China would be likely to have significant spillovers to the global economy,” the Bank said.“A sharp slowdown in China would be likely to have significant spillovers to the global economy,” the Bank said.
The Bank has started a new programme to look at liquidity of markets – one of the factors that paralysed lending in the runup to the banking crisis.The Bank has started a new programme to look at liquidity of markets – one of the factors that paralysed lending in the runup to the banking crisis.
“A repricing of risk would threatened financial stability if it were to generate sustained illiquidity in, and dislocation of, financing markets for the real economy that become increasingly important over the past few years. This repricing could be triggered by a number of shocks, including recent developments in Greece, the crystallisation of risks in emerging market economies or a reappraisal of the likely path of monetary policy in advanced economies,” it said. “A repricing of risk would threatened financial stability if it were to generate sustained illiquidity in, and dislocation of, financing markets for the real economy that become increasingly important over the past few years.
“This repricing could be triggered by a number of shocks, including recent developments in Greece, the crystallisation of risks in emerging market economies or a reappraisal of the likely path of monetary policy in advanced economies,” it said.
Some risks in the financial system had declined, the Bank said. “Notably some risks associated with low growth in advanced economies moderated as growth prospects in the euro area improved following actions by the European Central Bank.” The ECB started its own programme to inject fresh funds into the financial markets earlier this year.Some risks in the financial system had declined, the Bank said. “Notably some risks associated with low growth in advanced economies moderated as growth prospects in the euro area improved following actions by the European Central Bank.” The ECB started its own programme to inject fresh funds into the financial markets earlier this year.
The Bank of England also found that the indebtedness of UK households – a feature of assessments of financial stability last year – had improved slightly. The proportion of householders with mortgages greater than than four times their income had fallen in 2015. The Bank also found that the indebtedness of UK households – a feature of assessments of financial stability last year – had improved slightly. The proportion of householders with mortgages greater than than four times their income had fallen in 2015.
But the Bank noted activity in the housing market had picked up, with prices rising 5.6% in the three months to May compared with 3% six months earlier. As a result it has kept restrictions it put in place a year ago on the proportion of high to loan to value lending that banks can offer. But the Bank noted activity in the housing market had picked up, with prices rising 5.6% in the three months to May compared with 3% six months earlier. As a result it has kept restrictions it put in place a year ago on the proportion of high loan to value lending that banks can offer.