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| Bank of England governor Carney faces MPs, IMF welcomes Brexit progress – business live | Bank of England governor Carney faces MPs, IMF welcomes Brexit progress – business live |
| (35 minutes later) | |
| On ringfencing, Woods says the deadline in January 2019 but he would expect much of it to be done in four to six months. | |
| We are in a good place to regulate both ringfenced bank and the rest. | |
| And with that the meeting ends. | |
| Is there a risk banks could reallocate not from UK to EU but to somewhere else? | |
| Sharp says they have big European presences, and London has a tremendous competitive advantage. But there is no doubt that there will be profit opportunities in EU due to growth possibilities there. | |
| Question on misconduct? Will it be helped by senior management regime, will we get to a point where midconduct doesn’t form part of stress tests? | |
| Carney says previous misconduct is in the tests, what is not in there is what we don’t know yet about other possible types of misconduct. It could be they will pay less than the amount provided for in the stress tests. | |
| It’s a sad commentary that this is systemic, but hope to see it reduce. | |
| Question on foreign investment in the UK. Is that because of confidence in UK growth prospects, is it the kindness of strangers and if there is a reversal what are the implications for domestic credit conditions? | |
| Some of that reversal is in the stress tests. One of the big elements of flows has been into real estate, especially London. These are signs of confidence. There are lots of reasons to continue to see the flow. But if there was a shrinking, this would be a concern but you would see this in the risk premia. | |
| Question: A lot of this comes from China. What if see a sharp adjustment in China? | |
| That is again in stress test. This has been a concern for a number of years, the growth of indebtedness in China. China has many strengths, authorities have taken steps and will take more, but we recognise it as a risk. It will have an impact on the UK because we have a very open economy but we have done our best to make sure our system is resilient to that type of risk. | |
| Nicky Morgan leaves for a meeting with the prime minister and John Mann takes over, and asks about Bitcoin. Who will regulate it and if no one does will it be a problem? | Nicky Morgan leaves for a meeting with the prime minister and John Mann takes over, and asks about Bitcoin. Who will regulate it and if no one does will it be a problem? |
| Carney says at present we do not view Bitcoin as a financial stability issue. It is not connected closely to the mainstream financial system. It’s more like an equity type risk. | Carney says at present we do not view Bitcoin as a financial stability issue. It is not connected closely to the mainstream financial system. It’s more like an equity type risk. |
| Carney expects international regulators will discuss crypto-currencies and potential future role of central bank digital currencies. | Carney expects international regulators will discuss crypto-currencies and potential future role of central bank digital currencies. |
| He does not expect Bitcoin regulation to come under the Bank’s remit. He says the core financial system needs currencies that don’t take days to settle [as Bitcoin does]. | He does not expect Bitcoin regulation to come under the Bank’s remit. He says the core financial system needs currencies that don’t take days to settle [as Bitcoin does]. |
| Question on the gender pay gap. | Question on the gender pay gap. |
| Carney says they are high relative to other industries. It requires multi pronged approach to change over a period of time. The Women in Finance initiative etc, these will make a difference if they are followed through and focus minds of senior management and their shareholders. | Carney says they are high relative to other industries. It requires multi pronged approach to change over a period of time. The Women in Finance initiative etc, these will make a difference if they are followed through and focus minds of senior management and their shareholders. |
| Question on cyber developments and whether the bank has sufficient skills. | Question on cyber developments and whether the bank has sufficient skills. |
| Woods says it is challenging, mainly in operations resilience. Financial system is under attack, the Bank triggered its response systems for sufficiently large cyber attacks six times in last year. But now a significant development, we have brought a specialist GCHQ unit into our response team. | Woods says it is challenging, mainly in operations resilience. Financial system is under attack, the Bank triggered its response systems for sufficiently large cyber attacks six times in last year. But now a significant development, we have brought a specialist GCHQ unit into our response team. |
| On the regulatory systems, Carney says: | On the regulatory systems, Carney says: |
| We been through 10 years of fixing the faults of the financial crisis. With so many new rules in place, there is some duplication, and now the big job is to make adjustments to those rules on an international level. | We been through 10 years of fixing the faults of the financial crisis. With so many new rules in place, there is some duplication, and now the big job is to make adjustments to those rules on an international level. |
| Question: we are seeing some divergence in regulatory framework, eg in the US. | Question: we are seeing some divergence in regulatory framework, eg in the US. |
| Carney says, the changes actual and contemplated in the US are moving it more to how regulations are imposed in UK eg, the way they conduct stress tests, is moving more towards the way the Bank of England conducts them. | Carney says, the changes actual and contemplated in the US are moving it more to how regulations are imposed in UK eg, the way they conduct stress tests, is moving more towards the way the Bank of England conducts them. |
| I wouldn’t say we are seeing in the US an undercutting of UK standards of financial regulation. | I wouldn’t say we are seeing in the US an undercutting of UK standards of financial regulation. |
| We had a near death financial situation, we can’t run those risks again. The UK financial standards will continue to be at least as high as now after Brexit. | We had a near death financial situation, we can’t run those risks again. The UK financial standards will continue to be at least as high as now after Brexit. |
| Question on jobs numbers, and comments that to judge by the numbers leaving immediately after Brexit rather than four or five years out would be a mistake. | Question on jobs numbers, and comments that to judge by the numbers leaving immediately after Brexit rather than four or five years out would be a mistake. |
| Carney agrees. If in the short term there is an ability to retain interconections, the initial job losses are less. If those are pulled into the continent the job losses are much greater. | Carney agrees. If in the short term there is an ability to retain interconections, the initial job losses are less. If those are pulled into the continent the job losses are much greater. |
| I would focus more on medium term numbers as being more relevant. There is likely to be a degree of expediency, decisions will have to be made in interests of system. | I would focus more on medium term numbers as being more relevant. There is likely to be a degree of expediency, decisions will have to be made in interests of system. |
| Question about co-operation with EU colleagues: | Question about co-operation with EU colleagues: |
| Woods says Brexit is throwing up a point of tension within the EU, which will probably build rather than subside. EU authorities tend to impose regulatory restrictions that the UK applies to retail banking to wholesale banking too. | Woods says Brexit is throwing up a point of tension within the EU, which will probably build rather than subside. EU authorities tend to impose regulatory restrictions that the UK applies to retail banking to wholesale banking too. |
| Question about the potential loss to London of clearing business post Brexit? | Question about the potential loss to London of clearing business post Brexit? |
| Carney says the raw economics are compelling, so if the euro business were pulled out that is 13% of the overall pool. The loss of benefits would in our judgement cost at least 1 to 3 basis points to EU institutions, and that doesn’t sound much but 1 basis point equates to €21bn per annum. | Carney says the raw economics are compelling, so if the euro business were pulled out that is 13% of the overall pool. The loss of benefits would in our judgement cost at least 1 to 3 basis points to EU institutions, and that doesn’t sound much but 1 basis point equates to €21bn per annum. |
| Question: is there a clear enough understanding of the cost? | Question: is there a clear enough understanding of the cost? |
| Exchanges like this help, and it is a cost which would be borne by European pension funds, and industries and ultimately European households. | Exchanges like this help, and it is a cost which would be borne by European pension funds, and industries and ultimately European households. |
| Now questions to Carney about the London Stock Exchange succession planning (to recap Xavier Rolet decided to leave the LSE but an activist shareholder wanted him to stay on.) | Now questions to Carney about the London Stock Exchange succession planning (to recap Xavier Rolet decided to leave the LSE but an activist shareholder wanted him to stay on.) |
| Carney says they were aware of the issues, had multiple conversations with the board and management, it was clear that the then CEO was not going to continue with his role but they were in a legal position where they couldn’t say he would never return even though he had no intention of continuing under any circumstances. It was very Kafka-esq. | Carney says they were aware of the issues, had multiple conversations with the board and management, it was clear that the then CEO was not going to continue with his role but they were in a legal position where they couldn’t say he would never return even though he had no intention of continuing under any circumstances. It was very Kafka-esq. |
| Carney says consumer credit was a key component of the stress tests. | Carney says consumer credit was a key component of the stress tests. |
| The debt burden is less than it was in the 1990s. But there are without question parts of the working population that are vulnerable, who start from an overextended position. Those issues are important... we look at how we target an intervention to manage the scale of the risk. | The debt burden is less than it was in the 1990s. But there are without question parts of the working population that are vulnerable, who start from an overextended position. Those issues are important... we look at how we target an intervention to manage the scale of the risk. |
| Mann: are you underplaying the problem of the rise of consumer credit? | Mann: are you underplaying the problem of the rise of consumer credit? |
| Woods says the fact it is growing at 10% a year is causing some concern to the committee. The impact is different on different firms. We publish how much we think individual banks would lose. | Woods says the fact it is growing at 10% a year is causing some concern to the committee. The impact is different on different firms. We publish how much we think individual banks would lose. |
| John Mann: Is risky consumer credit only a problem at some banks. | John Mann: Is risky consumer credit only a problem at some banks. |
| FPC member Richard Sharp says they don’t go into the micro level. We were concerned at the pace of the growth of consumer credit in the economy. We formed a consensus and we acted. | FPC member Richard Sharp says they don’t go into the micro level. We were concerned at the pace of the growth of consumer credit in the economy. We formed a consensus and we acted. |
| Is there enough being done to prevent banking misconduct? | Is there enough being done to prevent banking misconduct? |
| Carney says, there is a lot being done to reduce banking misconduct. One of the things that is recognised is that fines alone of institutions well after the fact that affect current shareholders and not the individuals who perpetrated the act are a fairly ineffective way, shouldn’t be the tool to be the deterrent. | Carney says, there is a lot being done to reduce banking misconduct. One of the things that is recognised is that fines alone of institutions well after the fact that affect current shareholders and not the individuals who perpetrated the act are a fairly ineffective way, shouldn’t be the tool to be the deterrent. |
| There has been a dramatic change in the UK so senior managers are responsible for the actions, and if there is a pattern of misconduct, then it is not just those individuals [who commit misconduct] who are held accountable but senior managers. One of consequences is ability to claw back bonuses. | There has been a dramatic change in the UK so senior managers are responsible for the actions, and if there is a pattern of misconduct, then it is not just those individuals [who commit misconduct] who are held accountable but senior managers. One of consequences is ability to claw back bonuses. |
| Barclays and RBS failed 2017 test on the basis of the cut-off date for their capital reserves, but they’ve since built that up. Are you comfortable with that margin of error? | Barclays and RBS failed 2017 test on the basis of the cut-off date for their capital reserves, but they’ve since built that up. Are you comfortable with that margin of error? |
| Woods says this is the first year we haven’t required any of the banks to do anything on the back of stress tests. On those two, if we ran the tests today they would both pass. Quite a significant moment. | Woods says this is the first year we haven’t required any of the banks to do anything on the back of stress tests. On those two, if we ran the tests today they would both pass. Quite a significant moment. |