Bank of England says world risks could hurt City
GLOBAL risks, from the slowdown in China to the chance of Greece leaving the Eurozone could trigger panic in financial markets, leading to severe pain in London, the Bank of England warned yesterday.
The Financial Policy Committee (FPC) told firms like asset managers that they should be prepared to withstand rapid outflows of funds.
“Any of these [geopolitical] risks could trigger abrupt shifts in global risk appetite that in turn might lead to a sudden reappraisal of underlying vulnerabilities in highly indebted economies, or sharp adjustments in financial markets,” said the FPC.
As a result, it is focusing this year’s bank stress tests on international risks. By contrast, the 2014 stress tests looked at how big banks could cope with a crash in UK house prices.
“The committee remains concerned about the risk that market liquidity could prove fragile in stressed conditions, and judges that there is a need for market participants to be aware of these risks,” governor Mark Carney said in his letter to chancellor George Osborne yesterday.
Carney said he will ask asset managers how they plan to manage any serious outflows.
“The Bank and Financial Conduct Authority [FCA] are also planning to gather information from asset managers operating in the UK,” the letter said.
“Furthermore, the Bank is developing a research agenda to assess the impact of structural changes on market liquidity.”
Officials said they are also studying the system’s resilience to cyber attacks.