LONDON: Britain’s banking sector is “well placed” to deal with the fallout after the country’s shock vote to leave the European Union, the minister overseeing the financial sector said Wednesday.
Harriett Baldwin, addressing a retail banking conference in central London, told delegates that the industry—ravaged by the global financial crisis—had adequate capital and liquidity to weather Brexit.
World stock markets tumbled in the immediate aftermath of the June 23 referendum but have rebounded strongly over the past two sessions on bargain-hunting that some analysts argue will not last.
“British banks are well placed to manage the uncertainty resulting from last week’s vote,” said Baldwin, whose title is Economic Secretary to the Treasury.
“Since the financial crisis in 2008 . . . both the government and the industry have been working extremely hard to ensure that the UK has a safer and stronger banking sector.”
She added: “UK banks have collectively raised over £130 billion [$173 billion, 157 billion euros] of capital and now have more than £600 billion of high quality liquid assets.
“So our institutions have enough capital and liquidity to withstand a period of severe market volatility.”
In reaction to the Brexit vote, the Bank of England pledged Friday that it stood ready to pump more than £250 billion of funds to aid the smooth functioning of markets.
British commercial lenders on Tuesday had tapped the BoE for £3.1 billion to help bolster their balance sheets in the wake of the shock vote.
So far this month, the central bank has injected a total of more than £9.0 billion into lenders in three funding auctions aimed at calming markets.
“Britain’s financial services sector has been through trying times before,” said Baldwin, referring to historic turmoil that has included the 1987 stock market crash and the 1992 crisis when Britain pulled sterling out of the ERM, a precursor to the euro.”Financial markets are capable of weathering challenges. They adapt quickly. They find new levels. They price in and offer ways of managing risks like these.”
Wednesday’s conference, hosted by industry body the British Bankers’ Association (BBA), also heard growing concerns from delegates over the future of Britain’s membership of the single market and the so-called passporting scheme that currently allows London-based financial services firms to operate across the bloc.
‘Disconnect’ in referendum vote
Justin Bisseker, pan-European banks analyst at Schroders, said Britons voted on June 23 against the wish of many big players in the City.
“The comfort point was obviously the status quo, and that is why large businesses in the City voted for that,” he told delegates at the BBA conference.
“But there is a huge disconnect in this country that has been borne out of the financial crisis—and a lot of this disconnect existed before—between the haves and have nots.
“The City of London has recovered and has continued to thrive and do very well.
“I think the banks were recovering. Yes, shareholders have lost a lot of money—but the gravy train of good solid dividends coming along was almost there for the taking.”
Meanwhile, Britain is still slashing state spending under a harsh austerity program that was triggered by the global financial crisis.
The nation voted last week by 52 percent to 48 percent to quit the EU—despite government warnings of a potential recession and hefty price hikes for consumers.
“For me . . . the experience of the man or woman in the street of the ‘Leave’ vote, is yet to be felt,” cautioned Bisseker.
“In an economic sense, it could be felt pretty quickly. Property prices, I am sure, will fall. A lot of people are saying [between]15 and 20 percent.”