This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/live/2019/jul/11/bank-of-england-financial-stability-report-mark-carney-markets-rally-business-live

The article has changed 12 times. There is an RSS feed of changes available.

Version 4 Version 5
Bank of England: No-deal Brexit could cause 'significant' market turmoil - business live Bank of England: No-deal Brexit could cause 'significant' market turmoil - business live
(32 minutes later)
Q: What’s your message to the protesters asking you to do more on climate change, and put your money where your mouth is?
Carney defends the Bank’s track record, saying it has taken a lead forcing financial institutions to show their exposure to climate change. This is the TCFD [Task Force on Climate-related Financial Disclosures] rules, which the Bank itself is now following.
Now we need a system that can use that data, and manage the move to a climate-neutral future, the governor explains.
He says the Bank’s upcoming stress tests will show if banks and other financial companies are resilient enough to survive a range of future scenarios.
That will have a huge impact in terms of the preparedness of the system.
Then it’s up to politicians (and ultimately the public) to decide where the system is going.
My colleague Larry Elliott bowls a tempting delivery at the governor....
Q: Are you interested in becoming the next head of the International Monetary Fund?
Mark Carney says it is an “absolute privilege” to do his current job.
He praises Christine Lagarde’s work at the IMF, citing structural changes she’s driven including adding China’s Renminbi to the Special Drawing Rights Basket used by the IMF to fund its work.
Carney says we must respect the process. Lagarde has been nominated to be president of the ECB - she is “extremely well-suited” to that role, but she’s not been appointed yet.
Once she is, there will be an “open, transparent and merit-based” process to replace her... and that’s the right time to answer that question, he concludes, tucking his bat behind his pad carefully.
Mark Carney says the Bank is “disappointed” that there hasn’t been enough progress globally in tackling open-ended funds.
The problem is that they promise instant liquidity, but can’t provide it if investors rush to the exits at once.
Carney says the shuttering of Neil Woodford’s Equity Income fund is an investor protection issue, not a financial stability one. But it is symptomatic of a broader problem.
Our sense is that the financial stability risks from such funds are increasing.
On Brexit preparations, Carney says UK companies have made “real progress”.
But there is still more to do. Some UK exporters are not “all the way there” yet.
Also, the UK cannot fully insulate itself from financial spillovers from Europe.
Onto questions.....
Q: Are you really saying that it there is a massive global trade war, and a disorderly Brexit at the same time, the UK banking sector would be strong enough?
“The short answer is yes,” replies governor Mark Carney. The Bank has concluded that commercial banks have enough capital to absorb a disorderly Brexit rather than amplifying it.
The scenarios in the UK’s latest bank stress tests are actually more severe than a simultaneous trade war and no-deal Brexit, Carney explains. The banks passed those tests, so they could survive a trade war and no-deal Brexit, even if they occurred at the same time.
“Nobody wants a global trade war... nobody wants a disorderly Brexit” Governor Carney tells me when I ask if he really thinks the banks would be strong enough if a global trade war occurred at the same time as a disorderly Brexit...
Q: If that happened, would you rather tackle it from another role, perhaps as head of the IMF?
Carney says he will guarantee an “orderly transition” to his successor at the Bank of England.
I think that’s a pledge not to suddenly quit the Bank. Carney’s term ends in January.
IMF chief Christine Lagarde is due to move to the European Central Bank at the start of November, assuming she’s confirmed in October.
Asked about the vacancy at the IMF, Mark Carney says he is "committed to be here" at the Bank of England - he will make sure there is an orderly transition to his successor. Note: he is due to leave in January.
On the climate emergency, Mark Carney says the companies who adapt to a low-carbon future will thrive, while those which fail will “cease to exist”.
He says the Bank’s next stress tests, in 2021, will test companies for their preparation on climate change -- a world first, he declares (see this post for more details).
Carney turns to another financial threat -- open-ended funds which invest in illiquid assets.
The problem is that fund managers cannot access capital fast enough if too many investors try to redeem their money. This is likely to encourage investors to check out (rather than languish at the back of the queue) creating a “self-reinforcing dynamic”.
Anyone with money locked up with Neil Woodfood knows exactly what Carney means.
This is a global problem, Carney cautions.
Governor Carney is running through the key points we covered earlier -- the UK financial system is ready for a no-deal Brexit, but there would still be major market volatility.Governor Carney is running through the key points we covered earlier -- the UK financial system is ready for a no-deal Brexit, but there would still be major market volatility.
Turning to the rest of the world, Carney points out that global business confidence has been hit by worries about a global trade war. Markets are pricing in lower growth rates, and lower corporate profits, he adds.Turning to the rest of the world, Carney points out that global business confidence has been hit by worries about a global trade war. Markets are pricing in lower growth rates, and lower corporate profits, he adds.
There are reasons to worry, he adds. For example, credit growth in China is growing faster than earnings growth, and emerging markets are vulnerable to capital outflows.There are reasons to worry, he adds. For example, credit growth in China is growing faster than earnings growth, and emerging markets are vulnerable to capital outflows.
Mark Carney begins by pointing out that Brexit is the single most important determinant of the UK’s economic outlook.Mark Carney begins by pointing out that Brexit is the single most important determinant of the UK’s economic outlook.
Material risks still remain, he warns, even though firms are more prepared for Brexit.Material risks still remain, he warns, even though firms are more prepared for Brexit.
Carney also warns that there could be disruption to cross-border financial links unless EU regulators do more -- that would hurt EU-based families and businesses, and possibly those in the UK too.Carney also warns that there could be disruption to cross-border financial links unless EU regulators do more -- that would hurt EU-based families and businesses, and possibly those in the UK too.
The Bank of England is holding a press conference now to discuss the Financial Stability Report.The Bank of England is holding a press conference now to discuss the Financial Stability Report.
You can watch it online here (unless you’re too busy following the exciting cricket....)You can watch it online here (unless you’re too busy following the exciting cricket....)
Here’s the key message from the Bank of England’s financial stability report (which you can read online here).Here’s the key message from the Bank of England’s financial stability report (which you can read online here).
Bank resilience: Major UK banks and insurers are strong enough to handle a worst-case disorderly Brexit and continue to serve households and businesses.Bank resilience: Major UK banks and insurers are strong enough to handle a worst-case disorderly Brexit and continue to serve households and businesses.
Brexit checklist: The biggest risks of disruption in a worst-case disorderly Brexit to financial services used by UK households and businesses have been addressed.Brexit checklist: The biggest risks of disruption in a worst-case disorderly Brexit to financial services used by UK households and businesses have been addressed.
Global outlook: A trade war would damage the global economy at a difficult time. But UK banks are strong enough to keep lending.Global outlook: A trade war would damage the global economy at a difficult time. But UK banks are strong enough to keep lending.
Climate change: We will test that the UK financial system can handle the risks from climate change and support the transition to a carbon-neutral economy.Climate change: We will test that the UK financial system can handle the risks from climate change and support the transition to a carbon-neutral economy.
The Bank of England has outlined plans to test whether the UK financial system can survive the climate emergency.The Bank of England has outlined plans to test whether the UK financial system can survive the climate emergency.
It says it will publish a discussion paper in autumn 2019, and complete full stress tests by 2021.It says it will publish a discussion paper in autumn 2019, and complete full stress tests by 2021.
Financial stability risks from climate change arise both from the physical risks associated with the increased frequency of extreme weather events and from the transition to a carbon-neutral economy.Financial stability risks from climate change arise both from the physical risks associated with the increased frequency of extreme weather events and from the transition to a carbon-neutral economy.
This exercise will integrate climate scenarios with macroeconomic and financial system models. It will motivate firms to address data gaps and to develop cutting-edge risk management consistent with a range of possible climate pathways: ranging from early and orderly to late and disruptive.This exercise will integrate climate scenarios with macroeconomic and financial system models. It will motivate firms to address data gaps and to develop cutting-edge risk management consistent with a range of possible climate pathways: ranging from early and orderly to late and disruptive.
The discussion paper will cover issues such as the coverage of the test, the nature of scenarios considered, the appropriate time horizon and disclosure of results. This will allow the Bank to develop the scenarios in consultation with risk specialists from across the financial sector, climate scientists, other industry experts, and other informed stakeholder groups.The discussion paper will cover issues such as the coverage of the test, the nature of scenarios considered, the appropriate time horizon and disclosure of results. This will allow the Bank to develop the scenarios in consultation with risk specialists from across the financial sector, climate scientists, other industry experts, and other informed stakeholder groups.
The Bank of England points out that Brexit worries have pushed the pound down, and have dragged on stock prices too.The Bank of England points out that Brexit worries have pushed the pound down, and have dragged on stock prices too.
It says:It says:
Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate and an underperformance of UK-focused equities. In markets that are particularly dependent on foreign investors – notably commercial real estate and leveraged lending - investment into the UK was much weaker in 2019 Q1 than in recent years.Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate and an underperformance of UK-focused equities. In markets that are particularly dependent on foreign investors – notably commercial real estate and leveraged lending - investment into the UK was much weaker in 2019 Q1 than in recent years.
Earlier this week the pound hit a six-month low against the US dollar (a two-year low, if you ignore an odd market ‘flash crash’ in January).Earlier this week the pound hit a six-month low against the US dollar (a two-year low, if you ignore an odd market ‘flash crash’ in January).
But the BoE insists that the banks can cope.... even if Donald Trump unleashes a deeper trade war.But the BoE insists that the banks can cope.... even if Donald Trump unleashes a deeper trade war.
As the Bank puts it:As the Bank puts it:
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...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...
Even if a protectionist-driven global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the FPC judges that the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks.Even if a protectionist-driven global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the FPC judges that the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks.
The Bank of England also warns that Britain could suffer “significant market volatility” in the event of a disorderly Brexit.The Bank of England also warns that Britain could suffer “significant market volatility” in the event of a disorderly Brexit.
The Financial Stability Report warns:The Financial Stability Report warns:
“Financial stability is not the same as market stability. Significant volatility and asset price changes are to be expected in a disorderly Brexit.”“Financial stability is not the same as market stability. Significant volatility and asset price changes are to be expected in a disorderly Brexit.”
That’s a warning that we could see some serious turmoil in the stock market, and on the foreign exchanges, if the UK leaves the EU without a deal.That’s a warning that we could see some serious turmoil in the stock market, and on the foreign exchanges, if the UK leaves the EU without a deal.
Breaking! The Bank of England believes the UK banking sector is strong enough to withstand a disorderly Brexit, and an intensified trade war.Breaking! The Bank of England believes the UK banking sector is strong enough to withstand a disorderly Brexit, and an intensified trade war.
Its latest financial stability report has just been released, showing that the UK’s banks have enough capital to ride out a double-whammy of disruption at home and abroad.Its latest financial stability report has just been released, showing that the UK’s banks have enough capital to ride out a double-whammy of disruption at home and abroad.
The BoE’s Financial Policy Committee says:The BoE’s Financial Policy Committee says:
“The perceived likelihood of a no-deal Brexit has increased since the start of the year,”“The perceived likelihood of a no-deal Brexit has increased since the start of the year,”
“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.“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.
More to follow...More to follow...
Here’s a photo of a petition card being delivered to the Bank of England (perhaps to one of its pink frock coat-wearing security guards).Here’s a photo of a petition card being delivered to the Bank of England (perhaps to one of its pink frock coat-wearing security guards).
Analysts at Royal Bank of Canada have predicted that the Bank of England will slash interest rates from 0.75% to 0.5% immediately, if Britain leaves the EU without a deal this autumn.Analysts at Royal Bank of Canada have predicted that the Bank of England will slash interest rates from 0.75% to 0.5% immediately, if Britain leaves the EU without a deal this autumn.
But if Britain leaves with a deal, they think the BoE will sit on its hands for some time....But if Britain leaves with a deal, they think the BoE will sit on its hands for some time....
RBC told clients this morning:RBC told clients this morning:
In the event of a no-deal Brexit on October 31st, we see an immediate 25bps rate cut, possibly even before the scheduled MPC meeting on November 7th.We further think that immediate response would be followed-up by a further 25bps cut and the restarting of the bank’s QE policy before the end of the year.In the event of a no-deal Brexit on October 31st, we see an immediate 25bps rate cut, possibly even before the scheduled MPC meeting on November 7th.We further think that immediate response would be followed-up by a further 25bps cut and the restarting of the bank’s QE policy before the end of the year.
In the event of a smooth Brexit, therefore, we don’t see the MPC delivering on its current forward guidance but rather see Bank Rate unchanged through 2020.In the event of a smooth Brexit, therefore, we don’t see the MPC delivering on its current forward guidance but rather see Bank Rate unchanged through 2020.
One protestor is even quoting one of Mark Carney’s recent articles on the climate emergency (we published it here), which called on the financial sector to help tackle the problem.One protestor is even quoting one of Mark Carney’s recent articles on the climate emergency (we published it here), which called on the financial sector to help tackle the problem.
The group are positioned outside the Bank’s offices on Threadneedle Street, in the centre of the City:The group are positioned outside the Bank’s offices on Threadneedle Street, in the centre of the City:
You can sign the petition urging the Bank of England to help decarbonise the economy and support investment in low-carbon companies and technologies here.You can sign the petition urging the Bank of England to help decarbonise the economy and support investment in low-carbon companies and technologies here.
The letter recognises that BoE governor Mark Carney has spoken out about the issue -- including in a speech in March, urging governments to deliver coherent and credible policies. But more action is needed to drive the UK’s “green transition”.The letter recognises that BoE governor Mark Carney has spoken out about the issue -- including in a speech in March, urging governments to deliver coherent and credible policies. But more action is needed to drive the UK’s “green transition”.
Rather than buying bonds from oil companies, for example, the Bank could help support a Green New Deal by deterring banks from funding environmentally damaging projects.Rather than buying bonds from oil companies, for example, the Bank could help support a Green New Deal by deterring banks from funding environmentally damaging projects.
Addressed to Carney, the letter says:Addressed to Carney, the letter says:
Your recent warning about the “devastating effects” of climate change has provided a much-needed wake-up call to the world’s banks, investors and regulators. It’s brilliant to see you set a powerful example by announcing that the Bank of England will disclose its own climate risk.Your recent warning about the “devastating effects” of climate change has provided a much-needed wake-up call to the world’s banks, investors and regulators. It’s brilliant to see you set a powerful example by announcing that the Bank of England will disclose its own climate risk.
But we know you can and must go further. You rightly acknowledge that meeting even the modest targets of the Paris Agreement will require a “massive reallocation of capital”. But this is unlikely to happen unless central banks play a leading role.But we know you can and must go further. You rightly acknowledge that meeting even the modest targets of the Paris Agreement will require a “massive reallocation of capital”. But this is unlikely to happen unless central banks play a leading role.
"What do we want!? Green investment! When do we want it!? NOW!!" The climate emergency is on our doorstep we need to #GreenTheBoE today! If you agree sign here > https://t.co/pHbDJllbRa pic.twitter.com/ssKrI8qXN9"What do we want!? Green investment! When do we want it!? NOW!!" The climate emergency is on our doorstep we need to #GreenTheBoE today! If you agree sign here > https://t.co/pHbDJllbRa pic.twitter.com/ssKrI8qXN9