Bailey reiterated on Wednesday that Britain's banking system is well-capitalised and remains "safe and sound". Despite recent wobbles in the global banking system, financial markets now think it is almost certain that the BoE will raise interest rates again on Thursday, following a stronger-than-expected inflation reading for February. (Reporting by Andy Bruce, Editing by Kylie MacLellan)
Messaging: @brucereuters)) (Recasts, adds details)
LONDON, March 22 (Reuters) - More sharp moves in asset
prices could expose weaknesses in parts of Britain's financial
system, the Bank of England warned on Wednesday, with confidence
in international banks shaken recently by some high-profile
failures.
In a letter to lawmakers, the BoE said the strains affecting
global banks could still hurt Britain's economy, through higher
borrowing costs for consumers and businesses.
The Swiss government-backed takeover of Credit Suisse by UBS in recent days has helped soothe
concerns over European financial stability.
But the wipeout of some Credit Suisse bondholders has sent
shockwaves through bank debt markets, while the speed with which
trouble spread from regional U.S. banks to humble a big systemic
bank in Europe has rattled markets.
"Should there be further volatility and/or sharp moves in
asset prices, there are risks it could trigger the
crystallisation of previously identified vulnerabilities in
market-based finance, amplifying any tightening in credit
conditions," BoE Governor Andrew Bailey said in a letter to
parliament's Treasury Committee.
Bailey added that the Financial Policy Committee, which
oversees the stability of the financial system, was "continuing
to closely monitor these events, and the extent to which they
may impact the wider UK financial system".
Market-based finance refers to corporate capital markets and
non-bank financial firms like pension funds, whose financial
structure exacerbated a sharp sell-off in British government
bonds last September, triggered by the economic agenda of then-
prime minister Liz Truss.
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