July 11, 2019 / 12:23 PM / 2 months ago

UPDATE 1-BoE says British banks ready for no-deal Brexit, trade war

    * UK lenders well-capitalised for whatever comes - BoE
    * No-deal Brexit risks economic/market shock
    * Open-ended investment funds, Facebook's Libra scrutinised

 (Adds Carney comments from news conference)
    By David Milliken and Huw Jones
    LONDON, July 11 (Reuters) - British banks hold enough
capital to cope with a no-deal Brexit and a global trade war
simultaneously, the Bank of England said on Thursday, although a
disruptive Brexit would still cause major turbulence for
financial markets and the economy.
    Bank of England Governor Mark Carney also flagged ongoing
concerns about illiquid investment funds, liquidity shocks,
crypto-currencies and environmental dangers at a half-yearly
update on the risks facing Britain's banking system.
    Carney said while banks were well prepared for Brexit, this
did not mean the economy would be unscathed if Britain left the
European Union on Oct. 31 without a transition deal, something
both contenders to be the next prime minister say is possible.
    "Financial stability is not the same as market stability,"
Carney told a news conference.
    "In a disorderly Brexit, a range of UK asset prices would be
expected to adjust sharply, tightening financial conditions for
UK households and businesses."
    The BoE noted a sharp fall in foreign investors buying
British commercial property and some company loans.
    "There has been a deterioration in the quality of inflows
... that are financing the current account deficit," Carney
said, adding that it was crucial Britain remained an attractive
investment destination after Brexit.
       
    TRADE TENSIONS
    The BoE said trade tensions between the United States and
China had increased global financial risks and there was a
rising number of heavily indebted companies in the United
States, continental Europe and elsewhere.
    British banks were better prepared for a downturn than they
were before the 2008 financial crisis when they held much less
capital and required multi-billion-pound bailouts.
    "The system would continue to serve UK households and
businesses even if worst-case disorderly Brexit occurred at the
same time as a global slowdown triggered by a trade war," Carney
said.
    The BoE also said it would look at the risk posed by the use
of so-called 'tokens' and other assets used to make payments
outside the mainstream financial system.
    Last month Facebook        drew worldwide interest when it
announced plans to establish its own payment system, backed up
by a currency it calls Libra.
    Carney said Facebook would need to get issues such as
operational stability and anti-money laundering checks right
first time, unlike the approach taken in other, less sensitive
areas of technology.
    Banks' ability to withstand liquidity shocks would also be
put under the microscope later this year, the BoE said, though
it added that it did not intend to tighten liquidity rules. 
    British-based banks already hold 1 trillion pounds ($1.26
trillion) in liquid assets to cope with a disorderly Brexit or
other shocks.
    The Bank of England’s Financial Policy Committee (FPC), said
it would team up with Britain's Financial Conduct Authority to
assess whether investment funds should be required to set
lengthier withdrawal periods for investors if they hold
hard-to-sell assets such as commercial property.
    This follows the suspension in June of a fund from Neil
Woodford, one of Britain's best known money managers, which was
unable to meet withdrawal demands from clients.             
 ($1 = 0.7957 pounds) 

 (Editing by Alexander Smith)
  
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