Bank of England says banks can cope with a no-deal Brexit thanks to ‘extensive contingency planning’ – and fires warning shot to Facebook over Libra coin
- UK banks ‘strong enough’ to continue lending in the event of a no-deal Brexit
- There could be disruption to cross-border services following a no-deal though
- ‘Entrenched Brexit uncertainties’ are continuing to weigh on the UK economy
- Bank of England said Facebook’s digital coin plans need close attention
The Bank of England has said Britain’s banks will be able to withstand a no-deal Brexit should it happen thanks to ‘extensive contingency planning’ which has helped mitigate risks an abrupt EU departure would bring.
The Bank’s Financial Policy Committee (FPC) said major UK banks and insurers are ‘strong enough’ to cope and will continue lending to customers and businesses in a scenario that is becoming more likely by the day.
It added that the biggest risks of disruption to UK users of financial services ‘have been addressed’.
The Mark Carney-led Bank of England has offered some reassurance that Britain’s banks can cope with a no-deal brexit if required to
The FPC did offer up some words of caution though, saying that without action being taken by EU authorities there could be disruption to cross-border financial services in the event of a no-deal.
The major UK banks have maintained ‘tier 1 capital levels of around 17 per cent of risk-weighted assets,’ which means they have large reserves of cash and other highly liquid assets available to them if times get tough.
This level is more than three times what is was before the global financial crisis in 2008.
The minutes of the FPC meeting on 2 October also showed policymakers remain concerned over the toll the prolonged Brexit saga is taking on the economy.
The FPC said: ‘The committee concluded that entrenched Brexit uncertainties, particularly in an environment of weaker global growth, had continued to weigh on the UK economy, including on business investment, the prices of UK assets and flows of foreign capital into the UK, most notably in commercial property and leveraged lending markets.’
It added: ‘Although actions by businesses and authorities have resulted in some improvement in the preparedness of the UK economy for a no-deal Brexit, material risks of economic disruption remain.’
The central bank also took the opportunity to issue a warning shot to Facebook over its planned new digital coin Libra, indicating the social media giant will face close scrutiny from regulators.
Facebook’s planned Libra digital coin is attracting the scrutiny of the Bank of England
The FPC said: ‘Libra has the potential to become a systemically important payment system. The FPC judges that such a system would need to meet the highest standards of resilience and be subject to appropriate supervisory oversight, consistent with the principles set out above.’
‘The terms of engagement for innovations such as Libra must be adopted in advance of any launch. UK authorities should use their powers accordingly.’
The ongoing trade war between America and China is also a major concern for the Bank. It said: ‘Following the latest announcements, average bilateral tariffs between the United States and China are around 20 per cent higher than at the start of 2018.’
‘These tariffs – and the uncertainty associated with intensifying trade tensions – have contributed to slowing global growth and are likely to weigh on global growth in the coming quarters.’