10 Years on from the Credit CrunchMake Text Bigger
We are now 10 years on from the Global Financial Crisis and in particular in the UK from that infamous news report by the BBC’s Robert Peston.
Peston reported on BBC news he had heard that banks were no longer willing to lend to the Northern Rock bank and that unsecured savers need not panic yet, which they obviously immediately did causing the scenes of queues we all remember outside Northern Rock branches the very next day.
Since then and the resultant further bank bail outs and the collapse of interbank lending we have had 10 years of unprecedented stagnant living standards and a Housing Market that is in crises with Landlords suddenly taking the blame in the last 2 years.
However, are the banks that own your Buy to Let and main residence mortgage debt and hold your savings any safer now?
To mark the 10 year anniversary the Bank of England have issued a summary of why they think the UK banking system is now a safer place now it has been given responsibility for the supervision of individual banks and building societies along with the creation the Financial Policy Committee tasked by Parliament to monitor risks in the financial system that could cause problems for the wider economy.
8 Key points why Banks can now survive more substantial losses:
- “With capital requirements on large banks ten times higher than before the crisis, banks have raised more than $1.5 trillion of capital.
- Banks are now disciplined by a leverage ratio. This protects the system from risks and uncertainties that are hard to measure through risk weights and models.
- Large global banks are taking fewer risks trading in financial markets. Trading assets have halved.
- Banks are less dependent on each other. Interbank lending has fallen by two thirds since the crisis.
- Banks have raised over £130bn of true loss absorbing capital. As a result, the average ratio of capital to risk weighted assets has increased from 4.5% to 14.3%.
- The Bank of England’s first line of defence is intrusive supervision of banks and building societies.
- The second line of defence is to stress test lenders to make sure they have the strength to deal with very severe recessions without cutting back on lending. Last year’s test showed that even after suffering losses of £44bn. Losses that would have wiped them out ten years ago. Major banks would have a capital base more than twice as strong as in the run up to the crisis 10 years ago.
- Banks are less dependent on short term wholesale market funding which has fallen from 25% of total funding in 2006 to just 10% now.”
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