Andrew Bailey has known as into query whether or not UK banks have giant sufficient money buffers to deal with crises much like the current run on Silicon Valley Financial institution.
The Governor of the Financial institution of England (BoE) mentioned final month’s turmoil, which led to the rapid takeovers of the bank’s US and UK arms, served as a warning that rushes to withdraw deposits can now go “additional way more rapidly” because of on-line expertise.
The collapse of the financial institution sparked jitters throughout the globe, with UBS stepping in to save its Swiss rival Credit Suisse, whereas bank shares also slid, earlier than markets later calmed.
Talking at an occasion in Washington DC, Mr Bailey cautioned: “We will not assume that, going forwards, the present reply on the full measurement of liquidity safety is the proper one.
“We noticed with Silicon Valley Financial institution that with the expertise we’ve got as we speak – each by way of communication and pace of entry to checking account – runs can go additional way more rapidly.
“This should beg the query of what are acceptable and desired liquidity buffers that create the time wanted to take motion to resolve the issue.”
However he additionally reaffirmed his conviction that reforms launched after the 2008 monetary disaster had “labored”, including: “I don’t consider we face a systemic banking disaster.”
“Once I take a look at the UK banks, they’re properly capitalised, liquid and capable of serve their prospects and assist the financial system,” he added.
Learn extra from enterprise:
Lowest demand for cash since banks hoarded notes over millennium bug
Rise in job candidates ‘suggests tide could be turning’ in labour market
World economy entering ‘perilous phase’, IMF says
Mr Bailey acknowledged that requiring banks to carry bigger buffers risked having an influence on financial progress.
He instructed his viewers on the Institute of Worldwide Finance: “A typical end result of… growing the broader liquidity buffers of banks and non-banks might be to create a constraint on lending and funding in the true financial system.
“For the UK financial system this is able to go towards the necessity to finance funding to assist stronger potential progress, from its present weak stage.”
And the governor mentioned banks and non-banking monetary establishments couldn’t be anticipated to carry ever bigger liquidity buffers to cowl unforeseeable ‘Black Swan’ occasions, and mentioned it was preferable for central banks to have instruments to behave with “non permanent and focused interventions”.
Mr Bailey’s feedback on on-line expertise come after his deputy Sam Woods instructed MPs on the Treasury Committee final month that banks wanted to think about how easily deposits can be withdrawn electronically in seconds.
Hear and subscribe to The Ian King Business Podcast here.