Bank of England chief said, “Markets are trying on to find points of weakness”
On Tuesday, the Chief of Bank of England Governor Andrew Bailey said that the market is testing the bank for weakness. Vowed to be “very vigilant”, he suggested the marketing is “testing out” banks at moment. As the Global banking stocks have taken a great toll in March, fear has already spread regarding the collapse of the U.S.-based Silicon Valley Bank, considered one of the biggest financial crises ever.
Bailey said that the U.K.’s Treasury Select Committee that U.S. authorities are dealing with the regional banks stateside. He further affirmed that the banking system in the UK is “in a strong position capital and liquidity-wise.”
On Friday, the Deutsche Bank witnessed a sharp sell-off of European banking shares. As a result, German lenders are receiving consistent profitability along with their robust capital and liquidity position. Eventually, Deutsche gained more of the high ground on Monday with some lead gains. As First Citizens agreed to buy a large chunk of failed Silicon Valley Bank’s assets, the market panic is gone for now.
Andrew further said, “I also think what we saw at the tail end of last week, Friday in particular, when there were quite sharp market movements [were] moves in markets too, if you like, test out firms.” Bailey told, “I would not want to say that those in my estimation are based on identified weaknesses, more than testing out, I mean there is quite a bit of testing out going on at the moment.”
When it comes to the treatment of interest rate risk in the banking book (IRRBB), there are many differences between U.S. and U.K. regulations which were pointed out by Bailey. The British system is less exposed than U.S. regional banks which makes it less prone to prospective risks to bank capital and earnings from adverse movements in interest rates.
When Bailey was asked whether the banking system was now out of the woods or not, he responded, “Markets are trying on to find points of weakness at the moment. I don’t think we are at all in the place that we were in 2007/8, we’re in a very different place to then, but we have to be very vigilant.” He continued “So if I give you the answer ‘I don’t think there’s a problem going forwards,’ I do not want to give you for a moment the idea that we are not very vigilant, because we are. We are in a period of very heightened, frankly, tension and alertness, and we will go on being vigilant.”
The Bank of England also revealed that it warned U.S. regulators last week about mounting risks SVB prior to its collapse. Prudential Regulation Authority “understood that SVB UK was exposed to concentration risk, as it provided loans to and took deposits from the same relatively concentrated client base in the innovation sector.” Bailey further assured that it would not cause stress in the U.K. banking system.
I am Dale Joines and i am passionate about business and finance news with over 4 years in the industry starting as a writer working my way up into senior positions. I am the driving force behind guruobserver.com with a vision to broaden the company’s readership throughout 2016. I am an editor and reporter of “Basic Materials” category.
