July 1, 2015 / 9:47 AM / 4 years ago

HIGHLIGHTS-Bank of England's Carney speaks on financial stability

LONDON, July 1 (Reuters) - Bank of England Governor Mark Carney gave a news conference on Wednesday following the publication of the central bank’s latest financial stability report.

Below are some of his comments:

FULLY ENGAGED WITH GREEK SITUATION

“The situation’s fluid, defences could be tested, it depends on how things evolve. Our eyes are wide open on this, our job is not to be complacent.”

UK CURRENT ACCOUNT DEFICIT NOT DRIVEN BY “HOT MONEY”

“The extent to which our financing is longer term, it’s more equity-based, more FDI-based, it’s not hot money and therefore that ... which is flowing in, can’t come out.”

CONSEQUENCES OF LARGE CURRENT ACCOUNT DEFICIT

“If you’re running a large current account deficit, as we are, it puts a premium on having credible macro-economic frameworks and continuing to be open to trade and investment without question, or else, financing will be less easy, terms will change and there will have to be an adjustment in terms of domestic activity.”

INTEREST RATE ENVIRONMENT

“There is this backdrop of a low interest rate environment and the prospect of a relatively low interest rate environment for quite some time.”

RISK OF BIG BANKS LEAVING UK

“If you’re a global bank, a global institution, it’s not like you can go to some other jurisdiction and not have a credible resolution plan and think you’re going to operate in the United Kingdom or the United States or the euro area. It just won’t happen and it’s not like you can have a compensation scheme or governance strategy that doesn’t meet international best standards and expect the same access to those markets as you would if you meet global standards.”

DRAGHI’S “WHATEVER IT TAKES” COMMENTS

“I would never try to compare myself to President Draghi and the circumstances in which he found himself in when he made those comments. The risks, the existential risks that the euro was facing at that time and the importance of what he said ... There’s no comparison to the situation the BoE finds itself in today where there are some events that could have some spill-over impacts, that could lead to broader risks in markets and some knock-over effects for which we have all the instruments we need right now to help mitigate and which we have to some extent anticipated.”

OUR JOB IS TO LOOK AT GLASS HALF EMPTY

“Our job particularly at the FPC is always to look at the glass half empty and think about what could go wrong and how do you prepare the system for that and then make a judgement in terms of the cost-benefit of taking those preparations.”

NOT ALL TOOLS IN BOE HANDS

“Not all the tools (to respond to the Greek crisis) are the responsibly of the Bank of England.”

COMPETITIVENESS OF UK FINANCIAL SYSTEM

“The competitiveness that’s built into the system is much bigger, is much more robust, than any one individual institution.”

APPROPRIATE APPROACH FOR ASSET MANAGERS

“It would be somewhat surprising - an early stage analysis of the data backs this up - if liquidity rules and liquidity management strategies that were put in place under the old world, the pre-crisis world, the world of quite ample market liquidity, ultimately short-term market liquidity but quite ample market liquidity, if that approach were ideally suited to the current market environment.”

GOVERNMENT EMERGENCY “COBRA” MEETINGS

“In terms of what we have been doing, yes, we have attended ‘Cobra’ meetings. Andrew Bailey and I have attended them, that’s part of a broader set of discussions with other authorities including the FCA importantly as well as the Treasury domestically to be coordinated - share information - but also to be coordinated on action.”

PREPARED FOR GREXIT

“We have taken the approach in contingency planning that that (Greece exiting the euro) is a possibility and therefore we should prepare for that.”

NEED TO REINFORCE INTEGRITY OF EURO

“We think in the medium term we share the view of President Draghi and others, that much needs to be done to reinforce the integrity of the euro, the institutional integrity, the effectiveness of the euro area.”

CONTAGION FROM GREECE SHOULD BE LIMITED

“We think that in the near term the contagion should be limited here, but obviously there’s a reason we have contingency plans in place. There could be a period where there could be a more prolonged adjustment in risk appetite and a knock-on effect in financial markets.”

STERLING MARKETS

“I would say, as we sit here today, what you see in sterling markets is ... things are proceeding as one would hope.”

IMPACT OF GREECE ON RISK APPETITE IN UK

“A persistent impact on risk appetite and therefore on economic activity is unlikely.”

FINANCIAL POLICY COMMITTEE DISCUSSIONS ON GREECE

“Events in Greece have tipped the balance: the outlook has worsened. In terms of the specifics of the process, yes we have had discussions at the committee to come to that conclusion. The committee is fully briefed on developments in Greece, fully briefed on the contingency plans. They were fully briefed on contingency plans in advance, but also in terms of what elements of those contingency plans either have become operational or may become operational, and the determination of the committee was consistent with the conclusions in the report.”

CONTACTS WITH EUROPEAN COLLEAGUES

“We have been in close contact with our European partners on issues related to Greece, potential contagion from issues around the integrity of the euro area. For a number of years, we have been in more intensive contact since the negotiations began, with respect to specific issues around Greece and we have been in almost continual contact with our European colleagues ... over the course of the last two weeks.”

GREECE FOOTPRINT IN UK “TINY”

“The United Kingdom is relatively well insulated from the direct consequences of events in Greece. UK banks’ exposures to Greece are very small relative to their capital bases. The footprint of Greek banks in the UK is tiny compared to the size of our economy.”

UK EXPOSURE TO EURO AREA “CONSIDERABLE”

“In contrast, our economic and financial exposure to the euro area is considerable. Fortunately, the euro-area economy is stronger than a few years ago. Fiscal deficits have been reduced and banking systems reinforced. Moreover, new institutions and policy tools have been developed to limit the potential for contagion.”

UK WILL TAKE ANY ACTION REQUIRED

“The UK authorities will continue to monitor developments closely and will take any actions required to safeguard financial stability in the United Kingdom.”

RISKS ARE SHIFTING

“While the resilience of the institutions at the core of the financial system has continued to strengthen, risks are shifting to the markets that connect them, and to the infrastructure that underpins them.”

UK GROWTH “SOLID”

“In the United Kingdom growth has been solid. The burden of household debt has continued to fall modestly and its distribution has improved.”

CHINESE POLICYMAKERS FACE “BALANCING ACT”

“Over the past year, economic growth has slowed notably in a number of EMEs, including in China. Following a rapid build-up of indebtedness, Chinese policymakers now face a challenging balancing act between sustaining growth, managing financial stability and increasing openness.”

RISK OF DISLOCATION IN FINANCING MARKETS

“The risk that concerns the Committee is that an adjustment in risk appetite leads to a persistent dislocation in financing markets - dislocations which could be the product of the interaction between regulation, changes to market structure, and the rapid growth of market participants who take continuous market liquidity for granted. This is one reason why the FPC is interested in the activities of asset managers.” (Reporting by Sarah Young, Li-mei Hoang, Costas Pitas, Andy Bruce, editing by Estelle Shirbon)

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