BoE asks banks to boost liquid assets ahead of Brexit

LONDON • The Bank of England (BoE) is asking some UK banks to hold three times more liquid assets in the event of a market meltdown with a no-deal Brexit later this month, the Financial Times (FT) reported, citing people familiar with the situation.

Some lenders must hold sufficient so-called easy-to-sell assets to withstand 100 days of “severe stress” instead of the usual 30 days, the newspaper said. That’s when banks suspend interbank lending.

The UK has made “constructive developments” in preparing for a no-deal Brexit, though the economic impact of crashing out of the European Union (EU) would still be substantial, Bank of England governor Mark Carney said last week.

Authorities have taken steps to protect derivative markets, reduce financial risk and minimise trade friction, while rolling over some third-country trade agreements that Britain has through the EU, Carney told a House of Lords committee.

The BoE is monitoring the liquidity levels at banks daily ahead of the March 29 exit day. Lenders were also asked to model their balance sheets for the scenario where they won’t be able to swap the British pound for US dollars for several days, the FT said.

The BoE declined to comment on the report, the newspaper said. Meanwhile, BoE policymaker Jonathan Haskel warned that the UK may not see a material pickup in investment growth even if the government secures an exit deal with the EU this month.

Haskel, in his first speech since joining the Monetary Policy Committee (MPC) last September, also said Brexit is to blame for a majority of the UK’s recent substandard investment performance.

He also said that for long-term investments, a Withdrawal Agreement may not be enough. Businesses need to know what the future trade relationship will be, whether there’s a customs union or free-trade area, how borders will work. There’s further uncertainty around any transition period, including whether the UK would need to extend it before arriving at any deal.

“Investment decisions take time to pay back and hence investment might be held back by the prospect of uncertainty at some point in the payback period,” Haskel said in a speech in Birmingham yesterday. “At least for the next few years the prospect of low investment seems possible.”

Haskel, who joined the rate-setting MPC last year, didn’t discuss how he might vote in future policy decisions in his speech. — Bloomberg