BOE Says Concern Over Financial-System Shock Rises ‘Sharply’
BOE Says Concern Over Financial-System Shock Rises ‘Sharply’
Matthew Lloyd/Bloomberg
A pedestrian enters the stairwell to Bank underground station, beneath the Bank of England in London.
A pedestrian enters the stairwell to Bank underground station, beneath the Bank of England in London. Photographer: Matthew Lloyd/Bloomberg
The Bank of England said concern among market participants of another shock to the financial system jumped in the second half of the year as Europe grappled with its debt crisis.
“The perceived probability of a future high-impact event in the U.K. financial system increased sharply in the second half of 2011,” the central bank said in its Systemic Risk Survey, published today in London. It is at the highest level since the survey began in July 2008.
The Bank of England’s Financial Policy Committee will meet tomorrow amid concerns that Europe’s intensifying debt crisis will weaken the financial system and derail global growth. In the short term, more than half of respondents to the survey found the probability of a high-impact event to be “high” or “very high,” up from 15 percent in the first half. Over the medium term, the figure was 60 percent, up from 37 percent.
The survey also showed that confidence in the stability of the U.K. financial system over the next three years fell to its lowest level since the second half of 2009, with 28 percent “not very confident” and 57 percent “only fairly confident.”
Among respondents, 76 percent said that sovereign debt was one of the five key risks to the financial system. The same proportion cited the threat of an economic downturn, while 57 percent cited funding risks.
BOE Minutes
The Bank of England will publish the minutes of its November rate-setting meeting tomorrow. When the Monetary Policy Committee expanded stimulus last month, it said that “vulnerabilities associated with the indebtedness of some euro- area sovereigns and banks have resulted in severe strains in bank funding markets.”
“As for particular euro-area risks, responses included for example a break-up or collapse of the euro, disorderly debt restructuring, sovereign default and contagion,” the Bank of England said today. “For the U.K., examples included a rating downgrade, loss of confidence in fiscal solvency or the gilt market, a debt crisis, and government default.”
While four of the top five risks cited by respondents were unchanged from the first half, the percentage of those citing the risk of “financial institution failure/distress” rose to 26 from 18, pushing it up to fifth place.
To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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