December 16, 2019 / 5:59 PM / a month ago

HIGHLIGHTS-Bank of England's Carney speaks after stress test results

LONDON, Dec 16 (Reuters) - Bank of England Governor Mark Carney and other top officials from the central bank spoke to reporters on Monday after the BoE published its Financial Stability Report which looks at risks to the economy from the financial sector.

CARNEY ON ELECTION AND NO-DEAL BREXIT

“The worst case scenario is effectively a no-deal disorderly Brexit. The probability of that scenario has gone down because of the elction results and the intention of the new government. But the scenario itself and... the risks which we protect the system against has not itself changed, it’s just become less likely.”

“People would expect us... to continue to ensure that the system is ready.”

CARNEY ON TRANSITION

“Until we have a deal and a transition to that deal, we will continue to have arrangements in place, whether they’re additional liquidity, ensure that the capitalisation of banks are consistent or arrangements such as temporary but important crossborder arrangements that have been put in place around the derivative markets... as a bridge to the final relationship.”

CARNEY ON NEXT YEAR’S STRESS TESTS

“The committee will finalize its judgement on the type of stress that it will run next year... I can’t say exactly what that would be.

“It will be somewhat different from the type of stress that we have in the past.”

CARNEY ON FUND RESTRICTIONS

“I think the very strong desire is not to have those restrictions and to have a structure that responsively makes available opportunities for retail investors on a fully informed basis to invest in what can be very attractive assets but which are longer-term assets or more illiquid assets, and assets that are not commensurate with daily liquidity.”

“It’s not the equivalent of having a bank account, and having instant access to the fund. That shouldn’t be something that retail investors find out about in a gating situation or a severe situation.”

CARNEY ON LIQUIDITY OF FUNDS’ ASSETS

“(Funds) they should put their assets into liquidity buckets, so to speak. And liquidity in that regard shouldn’t be about whether something is listed or not, or has certain technical characteristics, it should be about how truly liquid they are, how quickly does it take, or how long would it take under reasonable circumstances, to sell the underlying asset.”

CARNEY ON U.S. CORPORATE RELEVERAGING

“The sharp build up in leveraged lending, particularly into the United States, the releveraging of corporate America, is an area where we do see there has been a steady build-up of risk there. The wquality of those loan-books has deteriorated.”

CARNEY ON HOUSEHOLD INDEBTEDNESS

“We are reassured by a couple of things in the UK which is first that the underwriting standards have held in. Not just on mortgages, in part because of the mortgage measures, but also on consumer credit where the PRA’s been active and overseen that and those have stabilised”

“But we’re also I would say reassured that UK households in general have been, you know, they have paid down debt and they’ve worked hard and paid down debt at least in relative terms and they are in a better position.”

“But what you do in those circumstances is to make sure that you have the appropriate buffers in that environment so that if risks did start to build we can act in a timely fashion.”

CARNEY ON CLIMATE RISKS

“We don’t look to substitute financial policy for climate policy... What we’re looking for management at banks to do is to think through their strategy about their exposure to industries, scale their exposure to industries that could be increasingly and materially exposed to climate risks. And the question is how resilient is your strategy if you are concentrating your lending in areas that will be potentially severely affected 5, 10 plus years out?

CARNEY ON PLANS FOR AFTER THE BOE

“The only clear plans I have are this role helping out on action climate finance for the UN, very specifically for the UK-Italian COP26 where interestingly enough it has a financial stability angle, it has a broader UK competitiveness angle.”

“That’s the only plan I have.” (Reporting by Shalini Nagarajan and Andy Bruce Editing by Alistair Smout)

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