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25 October 2018

Financial Times: BoE checking lenders’ easy-to-access liquidity

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The Bank of England is scrutinising whether lenders have enough easy-to-sell assets to withstand a “severe dislocation” in financial markets prompted by a cliff-edge Brexit.

Sam Woods, chief executive of the BoE’s Prudential Regulation Authority, said that boosting bank liquidity was just one measure the body was taking to reduce risks in the sector should the UK crash out of the EU in March without a withdrawal agreement or transition period.

“Just in case things go badly, we have been working with firms to ensure they have in place liquidity sufficient to accommodate a severe dislocation in financial markets,” Mr Woods told a City of London audience, according to prepared remarks. He added that “actions speak louder than words”.

Liquidity refers to the ability of companies to sell assets quickly without dramatically affecting their value. Since the financial crisis, supervisors have stepped up their assessments of both banks’ liquidity and capital.

The BoE has already said that banks have enough capital to withstand the worst possible disruption posed by Brexit after it stress-tested their balance sheets last year against a doomsday scenario of a rise in UK unemployment to 9.5 per cent and a one-third drop in British house prices. The results of this year’s stress tests will be unveiled in early December.

Regulators have introduced new liquidity requirements since the 2008 global financial crisis but the PRA has yet to announce how much further London-based banks should go to cope with a no-deal Brexit.

Full article on Financial Times (subscription required)

© Financial Times

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