BOE Says China an European Economic Risks Rising

A revival of the eurozone crisis and the resilience of the Chinese economy are regarded by policymakers at the Bank of England as significant risks to financial stability.

The Bank’s financial policy committee cited these factors, alongside a concern that markets were mispricing risk, as it published its quarterly assessment of the health of the financial system.

The members of the FPC, which is chaired by Bank of England governor Mark Carney, also revealed that they are to hold an extra meeting next week to discuss how much capital banks should hold when measured by the so-called leverage ratio. The leverage ratio, unlike other ways of measuring the financial health of banks, does not allow them to make judgments about whether some of their assets are riskier than others. The amount of capital they must hold as measured by the leverage ratio was published on 31 October. It had not originally been scheduled until the middle of 2015.

The committee, which was set up by the coalition in the wake of the 2008 financial crisis, said it had discussed the risk of a prolonged period of very low euro area inflation at its last meeting on 26 September.

“Weak growth and declines in headline inflation in the euro area were a particular source of concern,” the FPC said. Banks have already cut their exposure to the eurozone in the wake of the crisis three years ago but the committee said it “would continue to monitor developments in the euro area closely, including banks’ direct and indirect exposures”.

The committee also revealed it was watching China. “Committee members remained concerned about the potential for financial stability threats to originate from China as it rebalanced towards a more domestic demand driven economy. The Chinese housing market had been slowing and while annual credit growth had eased it remained close to 20%,” the record of the latest meeting said.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza