The Bank of England (BoE) has insisted that Britain’s financial system is “safe and sound” in a bid to calm nerves as markets prepare to reopen following the emergency sale of Credit Suisse to UBS.
Britain has so far avoided being drawn into the crisis that saw the collapse of two major US banks, but the plight of Credit Suisse – one of 30 banks considered big enough to influence the global financial system – served as a wake-up call. world economy.
Central banks around the world hailed the sale of the bank as a boost to global financial stability, but the deal announced by the US Federal Reserve and partners Sunday night suggests there are concerns more banks may need support in the coming weeks.
The turmoil in the sector means the Bank of England will come under scrutiny on Thursday when the Monetary Policy Committee decides whether to raise interest rates further. Despite the surprise, last Thursday the European Central Bank approved a large half-percentage-point increase in the interest rate.
After the Credit Suisse deal was announced late Sunday, the Bank of England said Swiss authorities had acted “to support financial stability,” adding: “The British banking system is well-capitalized and funded and remains safe and sound.”
The Financial Conduct Authority said it was “willing to approve” those aspects of the UBS/Credit Suisse deal that fell under its jurisdiction in the UK. Credit Suisse is one of the city’s largest employers, with 5,500 employees.
The agreement has been welcomed elsewhere, though central banks still fear more trouble.
The Fed said it joined the Bank of England, Bank of Canada, Bank of Japan, European Central Bank and Swiss National Bank in a coordinated move to improve central banks’ ability to support distressed private banks through credit swap line arrangements. long-term US dollars.
Swap lines are agreements between two countries to make currency more readily available for central banks to lend to private banks. This allows them to maintain their reserve requirements – the funds held by the bank to ensure it can pay customers in the event of mass withdrawals.
Two US banks failed this month due to withdrawing their funds and there are fears that could happen if account holders lose heart in the face of uncertainty.
In US swap line agreements, Great Britain, for example, might need dollars to satisfy a private bank’s US currency obligations. If dollar investors fear a private bank will run out of dollars, they may withdraw their money, which could make the situation worse.
The Bank of England will exchange pounds for federal dollars with an agreement to re-exchange at a later date at the same exchange rate once concerns subside.
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