Fi­nance sec­tor ‘can with­stand no-deal’

Deputy Gov­er­nor says it’s a turn­ing point one decade on

Yorkshire Post - Business - - FRONT PAGE - Mark Casci BUSI­NESS EDITOR @MarkCasci

Safe­guards put in place to pro­tect Bri­tain’s fi­nan­cial ser­vices sec­tor in the event of a no deal Brexit will en­sure the sta­bil­ity of the wider econ­omy, one of the Bank of Eng­land’s top per­son­nel has said.

Sam Woods, the bank’s Deputy Gov­er­nor for Pru­den­tial Reg­u­la­tion, told The York­shire Post that he was con­fi­dent that the UK’s fi­nan­cial ser­vices sec­tor, which em­ploys 23,000 peo­ple in Leeds alone, would be able to re­tain its strong stand­ing post Brexit and that re­forms car­ried out since the fi­nan­cial cri­sis meant that the wider econ­omy would be less ex­posed to peril within the sec­tor than it was with the eco­nomic crash of 2008.

Mr Woods said that the UK’s fi­nan­cial ser­vices sec­tor was at a ”turn­ing point” one decade on from the fi­nan­cial crash of 2008.

In a wide-rang­ing in­ter­view, Mr Woods – of­ten tipped as a suc­ces­sor to cur­rent Gov­er­nor Mark Car­ney – also said more work needed to be done na­tion­ally and in­ter­na­tion­ally from cy­ber at­tacks and that York­shire’s econ­omy, gen­er­ally, was in good shape.

Con­cern­ing safe­guards for the sec­tor in the event of a no deal be­ing reached, Mr Woods said that the UK’s cen­tral bank had fo­cused on three distinct ar­eas.

The first con­cerned a new three­year tem­po­rary per­mis­sion regime to al­low firms from the EU mem­ber states to con­tinue to do busi­ness in the UK, some­thing which af­fects many hun­dreds of Euro­pean busi­nesses and is cur­rently jour­ney­ing through Par­lia­ment.

The sec­ond con­cerned firms cur­rently both here in the UK and third coun­try firms who need to re­struc­ture out­wards so that in the event of a hard exit a big chunk of their rev­enue doesn’t drop away.

The third area con­cerned en­sur­ing banks are ready “in case there is a re­ally se­vere dis­lo­ca­tion”.

“We have had the banks all build­ing up their liq­uid­ity to just make sure that they can with­stand a se­vere dis­lo­ca­tion in the mar­kets if that oc­curs,” he said.

“None of that we are ex­pect­ing, but our job is to kind of pre­pare for the worst. We have been spend­ing a huge amount of time on Brexit and all of that ef­fort, or al­most all of it has been di­rected to­wards try­ing to avoid the risk of a cliff edge in fi­nan­cial ser­vices.

“We are mainly fo­cused on get­ting across any cliff edge risk as it arises and our role is to make sure that man­u­fac­tur­ers here in York­shire don’t have to worry about the fi­nan­cial ser­vices sec­tor caus­ing ex­tra prob­lems if things go badly. That is what we are try­ing to do.”

Per­haps the most com­plex of ar­eas for the Bank’s prepa­ra­tions con­cerns the de­riv­a­tives con­tracts writ­ten be­tween UK and EU mem­ber states prior to the ref­er­en­dum re­sults, a market of close to £100tn no­tional de­riv­a­tives con­tracts.

When asked if there was as much of an im­per­a­tive on mem­ber states to solve these “plumb­ing is­sues” as he called them, he said: “The prob­lems that will arise if there is a cliff edge Brexit with­out a so­lu­tion to that prob­lem are in no sense go­ing to be dis­pro­por­tion­ately felt by the UK.

“That is go­ing to cause dif­fi­cul­ties for many fi­nan­cial in­sti­tu­tions within the EU27, so I think there is a very strong vested in­ter­est in fix­ing that.”

Ten years on from the fi­nan­cial cri­sis, Mr Woods said the UK’s bank­ing sec­tor was in far bet­ter shape.

He said: “I think we are re­ally at a turn­ing point for fi­nan­cial ser­vices here in the UK in­clud­ing for the part of it here in York­shire. Why do I say that? Be­cause ba­si­cally this is the year in which sub­stan­tially we have fin­ished the job with all of these post-cri­sis re­forms. The best way to il­lus­trate that is the ring fence we have put around the re­tail parts of banks.

“The next time banks blow up, we have the op­tion to put the losses not on the tax­payer but on whole­sale lenders or in­vestors in banks. That pol­icy is now fully in place and the banks have is­sued most of what they need to do to deal with it. We set out to re­build the fi­nan­cial sys­tem af­ter it im­ploded in 2008 and that was mainly about mas­sively more cap­i­tal, mas­sively more liq­uid­ity and more sen­si­ble struc­tures.”

He added: “The best way to think about that is that the bank­ing sec­tor had got to about 40 times lever­aged be­fore the cri­sis, that is an ex­traor­di­nar­ily high amount of lever­age. We have brought it back to about 20 times lever­aged, that is still a lot of lever­age, but it is still a more sen­si­ble place to be.

“So I don’t think we have for­got­ten those lessons but I do think we are at a very im­por­tant point now which is as we come to the end of the re­form job there is ob­vi­ously a risk the pen­du­lum starts to swing the other way and that peo­ple do for­get the lessons of the cri­sis and I think a hugely im­por­tant part of our job is to lean against that.”

SAM WOODS:We have put a ringfence around the re­tail parts of banks.

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