Andrew Bailey has known as into query whether or not UK banks have massive sufficient money buffers to deal with crises just like the latest run on Silicon Valley Bank.
The Governor of the Bank of England (BoE) stated final month’s turmoil, which led to the speedy takeovers of the financial institution’s US and UK arms, served as a warning that rushes to withdraw deposits can now go “further much more quickly” due to on-line expertise.
The collapse of the financial institution sparked jitters throughout the globe, with UBS stepping in to avoid wasting its Swiss rival Credit Suisse, whereas financial institution shares additionally slid, earlier than markets later calmed.
Speaking at an occasion in Washington DC, Mr Bailey cautioned: “We can’t assume that, going forwards, the current answer on the total size of liquidity protection is the correct one.
“We noticed with Silicon Valley Bank that with the expertise we’ve in the present day – each when it comes to communication and velocity of entry to checking account – runs can go additional way more rapidly.
“This must beg the question of what are appropriate and desired liquidity buffers that create the time needed to take action to solve the problem.”
But he additionally reaffirmed his conviction that reforms launched after the 2008 monetary disaster had “worked”, including: “I do not believe we face a systemic banking crisis.”
“When I look at the UK banks, they are well capitalised, liquid and able to serve their customers and support the economy,” he added.
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Mr Bailey acknowledged that requiring banks to carry bigger buffers risked having an influence on financial progress.
He informed his viewers on the Institute of International Finance: “A common outcome of… increasing the broader liquidity buffers of banks and non-banks could be to create a constraint on lending and investment in the real economy.
“For the UK financial system this could go in opposition to the necessity to finance funding to help stronger potential progress, from its present weak degree.”
And the governor said banks and non-banking financial institutions could not be expected to hold ever larger liquidity buffers to cover unforeseeable ‘Black Swan’ events, and said it was preferable for central banks to have tools to act with “momentary and focused interventions”.
Mr Bailey’s feedback on on-line expertise come after his deputy Sam Woods informed MPs on the Treasury Committee final month that banks wanted to think about how simply deposits might be withdrawn electronically in seconds.
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Source: information.sky.com”