LONDON (Reuters) – Bank of England Governor Mervyn King and Deputy Governor Paul Tucker held a news conference to present the central bank’s half-yearly financial stability report on Thursday.
Also present were Andrew Bailey, head of the prudential business unit of the Financial Services Authority (FSA) and Andy Haldane, the Bank of England’s executive director, financial stability.
Following are highlights of the news conference:
KING ON IMPROVED MARKET SENTIMENT
“Since we met in the Summer, sentiment in financial markets has improved a little, supported by policy actions by a number of central banks. But the underlying picture for global growth remains weak and significant adjustments in both indebtedness and competitiveness are still required in the euro area.”
KING ON DANGER OF UNDERCAPITALISED BANKS
“Against that background, the Financial Policy Committee’s (FPC) primary concern has to been to ensure that UK banks have sufficient capital to underpin the resilience of the banking system so that they are on a solid footing to support economic growth. The danger to be avoided is that of inadequately capitalised banks holding back our recovery.
KING ON MISLEADING OFFICIAL CAPITAL RATIOS
“In judging that banks are adequately capitalised we need to ensure that the reported capital ratios are in fact an accurate picture of bank health. At present there are good reasons to think that they are not. That uncertainty around capital adequacy is in part responsible for low investment confidence in banks.”
KING SAYS PROBLEM OF UK BANK CAPITAL IS MANAGEABLE
“It’s important to keep this judgment in perspective. The problem is manageable and is already understood, at least in part, by markets. But it does warrant immediate action.”
KING SAYS FSA WILL TAKE ACTION ON FPC RECOMMENDATIONS
“The formal recommendation of the FPC, the only formal recommendation on this occasion, shown on page 5 of today’s report, states that the FPC recommends that the FSA take action to ensure that the capital of UK banks and building societies reflects a proper valuation of their assets, a realistic assessment of future conduct costs and prudent calculation of risk weights.
KING: BANK CAPITAL CONCERNS SHOULD NOT REQUIRE GOVT TO PUT NEW CAPITAL INTO RBS OR LLOYDS
Asked whether taxpayers should be concerned that they may need to eventually stump up more money to achieve better capital adequacy, King said: “No, I don’t think the problem is on the scale where it should concern taxpayers. The Treasury have made it quite clear to the committee that they do not want to put more capital into the banks that are partially state owned. And then there are other ways for which it’s possible for those banks to meet our recommendation without any need for the government to put in new capital.”
KING SAYS INDIVIDUAL BANKS WILL CONSULT WITH THE FSA
“The key thing is that FSA will now that take this forward with individual banks. Individual banks will then be announcing actions themselves, as to: first of all, how much they need to provide under these three headings, and then secondly what actions they will take in order to raise sufficient capital, or indeed to change their exposures.”
KING ON “EXCEPTIONALLY CHALLENGING” ENVIRONMENT
“We continue to face an exceptionally challenging environment for financial stability. The problems facing the world economy are not ones that we or other UK authorities can resolve alone.
KING: IMPORTANT BANKS TAKE ADVANTAGE OF “BREATHING SPACE” OFFERED BY FLS TO REINFORCE BALANCE SHEETS
“At present, a range of policy measures including the Funding for Lending Scheme, have given banks a breathing space in which to reinforce their bank sheets. It’s important that they take advantage of that breathing space.
KING SAYS LIKELY THE 13 BLN STG BANKS HAVE PUT ASIDE ON CONDUCT ISSUES WILL HAVE TO RISE
“Banks have set aside an aggregate so far of about 13 billion pounds for conduct losses, but it’s likely that figure will have to rise, and will be sensible to make provision for that now.”
FSA’S BAILEY SAYS IMPORTANT UK BANKS USE “WINDOW OF OPPORTUNITY” TO IMPROVE CAPITAL POSITION
“As a consequence of actions that have been taken over the course of the last six months or so, particularly the introduction of Funding for Lending and steps that we and the FSA have taken, we have seen a change in funding conditions and we do think there’s a window of opportunity now to take these sorts of actions – to take these sorts of actions more readily – and it’s important that we use that window of opportunity.”
KING ON ACTIONS NEEDED TO REPAIR BANK CAPITAL
“This problem is manageable, perfectly manageable but it requires some action now. If there is a problem, it’s perfectly manageable, don’t just leave it in the hope, just deal with it now, we can do it. There is no reason why the actions that need to be taken can’t be done fairly quickly without any damage or difficulty for the UK banking system.”
TUCKER ON WORK TO BE DONE ON FINANCIAL STABILITY REPORT
“There’s a gem of work to be done. I’m doing it.”
Tucker did not reply directly to a question about how he viewed the appointment of Mark Carney as incoming BoE governor.
HALDANE SAYS ABOUT A THIRD OF COMMERICAL REAL ESTATE LOANS SUBJECT TO FOREBEARANCE
“We do have a significant overhang of legacy loans, commercial property loans, that account for fully half of all corporate lending by UK banks. A sizeable chunk of those loans we know to be subject to forebearance. A third, perhaps more, of those loans are subject to forebearance and we think in some cases there is evidence of those loans being under-provided for.”
TUCKER DECLINES TO SAY WHETHER HE WILL SERVE FULL TERM
Questioner: “You said that you’re doing your job at the moment but do you intend to serve out your full term until February 2014?”
Tucker: “I am the deputy governor of the Financial Stability, I am doing that job.”
Questioner: “And do you intend to serve out your full term?”
Tucker, who had been favourite to succeed King before Carney’s surprise appointment, said nothing.
KING RESPONSE TO QUERY ABOUT HALDANE’S FUTURE
“Let me assure you that all the people around me here can stay at the Bank for as long as they like, except for me.”
HALDANE SAYS “NOT A FAG PAPER OF DIFFERENCE” BETWEEN HIM AND CARNEY ON REGULATION
“If you were to put Mark and I’s speech cheek-by-jowl, you would find not so much as a fag paper of difference between them on regulatory reform agenda.”
(Reporting by UK economics team)