British financial stability: Changing direction

WITH Greece teetering on brink of exit from the euro area, the timing of the Bank of England’s twice-yearly update on financial stability was not ideal. As of two weeks ago, the outlook in the report was broadly unchanged, said Mark Carney, the bank’s governor. But given the Greek crisis—and especially the events of this week—things are now looking worse.Thankfully, British banks’ exposures to Greece are tiny­. They are worth less than 1% of the value of their equity capital. For the financial system to be at risk, the crisis would need to spread to peripheral euro-area economies. British banks’ exposures to the likes of Italy, Spain and Portgual amount to 60% of their equity capital. But, unlike when Greece was last under threat in 2012, contagion seems improbable. Indeed, stronger growth in Europe has been contributing to an increase in financial stability, says the report.&nbsp; Without contagion, that should continue.Beyond Greece, the Bank of England continues to monitor multiple threats. For instance, it frets about a slowdown in emerging markets such as China, to which—unlike Greece—Britain’s banks are heavily exposed. Interest rates rises in America—expected to start in the second half of 2015—could imperil these economies if they trigger large capital outflows. As a result of these concerns, this year’s annual stress tests to Britain’s banking system will …<div class="og_rss_groups"></div>
Source: The Economy