Bri­tish banks face risk de­spite lim­ited ex­po­sure

Kathimerini English - - Business -

LON­DON (AP) – Bri­tish banks face an in­di­rect risk from Greece’s fi­nan­cial cri­sis de­spite hav­ing a “re­mark­ably small” di­rect ex­po­sure to the coun­try, the gov­er­nor of the Bank of Eng­land said yes­ter­day. Mervyn King called for greater dis­clo­sure of sov­er­eign and bank­ing ex­po­sures, and of other risks which may be lurk­ing on bal­ance sheets, to bol­ster con­fi­dence in the broader fi­nan­cial sys­tem. “If there is un­cer­tainty about ex­po­sures and a lack of trans­parency and peo­ple sim­ply do not know which other in­sti­tu­tions could be at risk be­cause of their di­rect and in­di­rect ex­po­sures, then there is al­ways the risk that peo­ple may feel it’s just not worth con­tin­u­ing to roll over fund­ing to in­sti­tu­tions,” King told a news con­fer­ence as he pre­sented the first re­port of the new Fi­nan­cial Pol­icy Com­mit­tee. The Fi­nan­cial Pol­icy Com­mit­tee, which is charged with iden­ti­fy­ing risks and rec­om­mend­ing ac­tion to re­duce them, was cre­ated in a reg­u­la­tory shake-up which brings all the over­sight func­tions within the Bank of Eng­land. The reg­u­la­tory changes have yet to be fi­nal­ized. Al­though di­rect ex­po­sure to the Greek mar­ket is small, the com­mit­tee’s re­port said Bri­tish banks could be hurt by jit­ters that spread through­out the global fi­nan­cial sys­tem. In par­tic­u­lar, the re­port warned about a tight­en­ing in bank fund­ing con­di­tions. That oc­curred in 2008 af­ter US in­vest­ment bank Lehman Brothers col­lapsed, as in­vestors re­fused to lend their money to banks for fear they would be next to col­lapse. “Con­ta­gion could be am­pli­fied if bank cred­i­tors were un­sure about the re­silience of their coun­ter­par­ties,” the com­mit­tee’s re­port said. Banks should build up cap­i­tal dur­ing times of strong earn­ings, it said. It also ex­pressed concern that banks may be hid­ing risks cre­ated by be­ing pa­tient with bor­row­ers who fall be­hind on their pay­ments. Ger­man Chan­cel­lor An­gela Merkel and French Pres­i­dent Ni­co­las Sarkozy agreed last week to pur­sue a Vi­enna ini­tia­tive-style so­lu­tion for Greece, en­cour­ag­ing cred­i­tors to roll over ex­pir­ing bonds un­til the coun­try’s aus­ter­ity pro­gram shows re­sults or a per­ma­nent res­cue fund starts in mid-2013. Pas­sos Coelho leads a gov­ern­ment that will have to im­ple­ment an aus­ter­ity plan that was a con­di­tion of a 78-bil­lion-euro ($111 bil­lion) fi­nan­cial aid pack­age from the EU and the In­ter­na­tional Mon­e­tary Fund. With the coun­try’s debt and bor­row­ing costs surg­ing, Por­tu­gal fol­lowed Greece and Ire­land in April in seek­ing a bailout. Banco Com­er­cial Por­tugues SA, Por­tu­gal’s sec­ond­biggest pub­licly traded bank by mar­ket value, holds about 700 mil­lion eu­ros of Greek gov­ern­ment debt, Car­los Santos Fer­reira, its chief ex­ec­u­tive of­fi­cer, said on June 7. “I’m not wor­ried,” he told re­porters. He said be­tween 40 and 50 mil­lion eu­ros of the bonds ma­ture this year and that Banco Com­er­cial is will­ing to main­tain hold­ings of Greek debt. (Bloomberg) 114.5 from 114.2 in May. The rise was un­ex­pected – the con­sen­sus in the mar­kets was for a mod­est de­cline. Ger­many is en­joy­ing a strong eco­nomic re­cov­ery, based on strong ex­ports and in­creas­ing in­vest­ment in ma­chin­ery and equip­ment at home as busi­nesses ex­pand. Up­beat re­ports from the man­u­fac­tur­ing, whole­sale and con­struc­tion sec­tors off­set a slight de­cline in re­tail­ing. “The Ger­many econ­omy is en­joy­ing a ro­bust up­swing,” the in­sti­tute said in a state­ment. (AP)

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