Britain’s banks called to ‘fireside chat’

Construction cranes stand on the horizon beyond the Bank of England in the City of London on June 27, 2016. Britain should only trigger Article 50 to leave the EU when it has a "clear view" of how its future in the bloc looks, finance minister George Osborne said Monday following last week's shock referendum. London stocks extended their losses in early afternoon Monday, led by banking, airline and property shares, following Britain's vote to leave the EU. / AFP / Daniel Leal-Olivas (Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)©AFP

The chief executives of Britain’s biggest lenders were called into the Bank of England on Wednesday to discuss the impact on the financial system of the country’s vote to leave the EU in last week’s referendum.

BoE officials gave the bosses of big British banks a supportive message about the amount of liquidity in the system. They also pressed the banks to keep lending to consumers and businesses to avoid a repeat of the “credit crunch” that hit after Lehman Brothers failed in 2008, according to a person briefed on the meeting.

Bankers said it was expected to be the first in a series of mandatory “fireside chats” to monitor the effect of the Brexit vote, which wiped billions of pounds off the market value of many UK banks.

The BoE declined to comment.

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The meeting comes despite a pledge last year by the BoE to call time on the era of fireside chats and a raise of the governor’s eyebrows as a way to influence banks’ behaviour, instead emphasising transparency.

But taking lessons from the financial crisis, the BoE is keen to avoid any one bank being singled out for attention — either rightly or wrongly — by setting up regular meetings with all banks after last week’s seismic vote by the UK to leave the EU.

The bank chiefs discussed the market reaction to the referendum result, how the financial system had functioned amid the volatility in asset prices and the impact it was expected to have on the economy, according to one person briefed on the agenda.

Senior bankers say the financial system held up well despite fears that regulators’ restrictions on how much assets banks can hold on their balance sheets had drained liquidity from markets and would exacerbate any shock.

“We are getting used to lower levels of liquidity, so we’re getting used to seeing this higher volatility than before, as that reflects the lower liquidity,” Daniel Pinto, head of JPMorgan’s investment bank, told the Financial Times after the referendum result triggered steep falls in stock markets and the pound.

The heads of the five major UK banks — HSBC, Barclays, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered — were present on Wednesday morning along with a few others including Nationwide and TSB.

BoE governor Mark Carney made an appearance at the meeting, which was chaired by another senior central bank official.

The bankers were told the BoE would be looking closely at areas it had considered potential hotspots before the referendum, such as housing — in particular any slowdown in the market for prime London residential property.

Moody’s, the credit rating agency, lowered its outlook for the UK banking system on Tuesday, saying it expected the referendum to result in “reduced demand for credit, higher credit losses and more volatile wholesale funding conditions for UK financial institutions”.

The BoE said before the referendum that it would “take all necessary steps” to protect the financial system and the economy, including making £250bn of liquidity available to support banks.

The central bank’s Prudential Regulation Authority had already ordered banks to stockpile cash at ATMs and across branches in case a Brexit vote resulted in customers rushing to withdraw their money.

It also ran a series of stress tests on individual banks’ balance sheets and checked they were holding higher than usual levels of liquid assets that could be easily sold in a crisis, according to people familiar with the situation.

Executives from Britain’s top lenders and foreign groups with large UK operations met separately in London on Tuesday to discuss the sector’s initial response to the referendum result.

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