The Bank of England (BoE) has insisted Britain’s financial system is “safe and sound”, in an attempt to calm nerves as markets prepare to reopen following Credit Suisse’s hasty sale to UBS.
Britain avoided being dragged into a crisis that saw two major US banks fail, but the plight of Credit Suisse, one of the 30 banks considered big enough to affect the global financial system, was a wake-up call. World economy.
Central banks around the world hailed the bank sales as a boost to global financial stability, but a deal announced by the US Federal Reserve and partners on Sunday night suggested fears that more banks will need support in the coming weeks.
Confusion in the sector will put the BoE under scrutiny on Thursday when the Monetary Policy Committee decides whether to raise interest rates further. Despite the surprise, the European Central Bank on Thursday approved a big half-percentage-point hike in interest rates.
After the Credit Suisse deal was announced late Sunday, the BoE said Swiss authorities acted to “support financial stability.”
The Financial Conduct Authority said it was “prepared to approve” those aspects of the UBS/Credit Suisse deal. Credit Suisse is one of the city’s largest employers with 5,500 employees.
The deal has been welcomed elsewhere, although central banks still fear more complications.
The central bank said it had joined the BoE, the Bank of Canada, the Bank of Japan, the European Central Bank and the Swiss National Bank in a coordinated move to improve central banks’ ability to support struggling private banks through debt swap tax arrangements. .
Swap lines are agreements between two countries to make currency readily available for central banks to lend to private banks. This allows them to maintain their reserve requirements – funds held by the bank to ensure that customers can be paid in case of massive withdrawals.
Two US banks have failed this month as they withdraw their money, and there are fears that this could happen if account holders are disheartened by the uncertainty.
In US swap line agreements, Great Britain, for example, may require dollars to meet a private bank’s obligations in US currency. If dollar investors fear that a private bank has run out of dollars, they may withdraw their money, exacerbating the situation.
The BoE Fed will exchange pounds for dollars with an agreement to exchange at a later date at the same exchange rate once fears subside.
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