Banking turmoil: How worried should we be in Britain?
How worried should we be about the banks?
It’s a question that’s been hanging over the financial system since the collapse in the space of a fortnight of three moderate American banks, including Silicon Valley Bank (SVB), followed by Swiss behemoth Credit Suisse.
The spectacle of regulators, political leaders and bankers spending sleepless weekends managing insolvencies, bailouts and takeovers, against the red-ink backdrop of lurching markets, has stirred memories of 2008 and the financial crash.
The answer from Bank of England governor Andrew Bailey, repeated to MPs on the Treasury Select Committee on Tuesday, is “don’t panic”, not yet anyway.
Mr Bailey conceded that recent events made this a moment of “heightened tension and alertness”, but that comparisons with 2008 are erroneous and, so far, UK regulations introduced post-crash are passing the test.
His diagnosis is that while the issues that brought down SVB and Credit Suisse are distinct and separate, the interconnectedness of the financial system means the risk of contagion cannot be ignored.
SVB collapsed because of poor risk management, with deposits locked into fixed incomes investments that fell in value as interest rates rose. Credit Suisse meanwhile, after a decade of unerringly finding new scandals in which to become embroiled, finally stepped on a rake it could not recover from.
Mr Bailey found himself directly involved with the fallout from SVB, engineering the sale of its UK subsidiary to HSBC over a long weekend, with the deal only confirmed he said at 4am on the Monday, hours before markets reopened.
The actions taken by the Bank he said proved the value of new regulation.
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A five-point guide to the banking panic of 2023
SVB had a distinct UK presence because its British branch had grown to a point it was required to become a separate subsidiary. That in turn gave the Bank of England and the Prudential Regulation Authority options in managing its decline, one of which was a sale.
Mr Bailey and his colleagues did concede there are lessons to learn, primarily from the speed with which confidence and, crucially, deposits were withdrawn from the banks.
As a result they will re-examine whether the current bank “stress tests” governing liquidity – the amount of cash banks must have on hand to absorb shocks to the system – are adequate.
Technology may have helped change that calculation. In 2007 we knew Northern Rock was on the brink because customers were queuing outside branches. Today you can withdraw funds digitally in the time it takes to read this sentence, and a bank run could be underway by the end of the paragraph.
Deputy governor Dave Ramsden told MPs that messaging apps further accelerate the potential for bank runs, and said this was a factor in the SVB collapse, with the bulk of depositors all working in the tight-knit US tech industry.
“They were a tech-savvy group, already using messaging in ordinary situations, using it in a run situation.”
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The result was what Bailey called “the fastest journey from health to death since Barings”, a reference to the British investment bank that collapsed spectacularly in 1995.
But he insisted the issues are bank-specific and isolated, describing the jitters that have seen banks stocks rise and fall rapidly as markets “testing” various institutions, looking for weakness. The latest example came on Friday afternoon, when Deutsche Bank’s valuation fell without an obvious trigger only to recover on Monday.
“My very strong view of the UK banking system is that it is in a very strong position,” Bailey said. “But there are moves in markets to test out firms, they are not based on identified weakness, rather they’re testing out. There’s a lot of testing going on.”
The taxpayer is to help drive the switch to non-polluting vehicles through a new grant of up to £3,750, but some of the cheapest electric cars are to be excluded.
The Department for Transport (DfT) said a £650m fund was being made available for the Electric Car Grant, which is due to get into gear from Wednesday.
Users of the scheme – the first of its kind since the last Conservative government scrapped grants for new electric vehicles three years ago – will be able to secure discounts based on the “sustainability” of the car.
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It will apply only to vehicles with a list price of £37,000 or below – with only the greenest models eligible for the highest grant.
Buyers of so-called ‘Band two’ vehicles can receive up to £1,500.
The qualification criteria includes a recognition of a vehicle’s carbon footprint from manufacture to showroom so UK-produced EVs, costing less than £37,000, would be expected to qualify for the top grant.
It is understood that Chinese-produced EVs – often the cheapest in the market – would not.
BYD electric vehicles before being loaded onto a ship in Lianyungang, China. Pic: Reuters
DfT said 33 new electric car models were currently available for less than £30,000.
The government has been encouraged to act as sales of new electric vehicles are struggling to keep pace with what is needed to meet emissions targets.
Challenges include the high prices for electric cars when compared to conventionally powered models.
At the same time, consumer and business budgets have been squeezed since the 2022 cost of living crisis – and households and businesses are continuing to feel the pinch to this day.
Another key concern is the state of the public charging network.
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The Chinese electric car rivalling Tesla
Transport Secretary Heidi Alexander said: “This EV grant will not only allow people to keep more of their hard-earned money – it’ll help our automotive sector seize one of the biggest opportunities of the 21st century.
“And with over 82,000 public charge points now available across the UK, we’ve built the infrastructure families need to make the switch with confidence.”
The Government has pledged to ban the sale of new fully petrol or diesel cars and vans from 2030 but has allowed non-plug in hybrid sales to continue until 2025.
It is hoped the grants will enable the industry to meet and even exceed the current zero emission vehicle mandate.
Under the rules, at least 28% of new cars sold by each manufacturer in the UK this year must be zero emission.
The figure stood at 21.6% during the first half of the year.
The car industry has long complained that it has had to foot a multi-billion pound bill to woo buyers for electric cars through “unsustainable” discounting.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said the grants sent a “clear signal to consumers that now is the time to switch”.
He went on: “Rapid deployment and availability of this grant over the next few years will help provide the momentum that is essential to take the EV market from just one in four today, to four in five by the end of the decade.”
But the Conservatives questioned whether taxpayers should be footing the bill.
Shadow transport secretary Gareth Bacon said: “Last week, the Office for Budget Responsibility made clear the transition to EVs comes at a cost, and this scheme only adds to it.
“Make no mistake: more tax rises are coming in the autumn.”
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