The collapse of Silicon Valley Bank occurred at a speed not seen since a rogue trader killed off the two-centuries old Barings merchant bank in the 1990s, said Bank of England governor Andrew Bailey.
Speaking before a Treasury Committee in Parliament on Tuesday on the same day U.S. regulators are testifying, Bailey noted that recent turmoil in the financial sector showed markets were testing out firms for signs of weakness but that the U.K. banking system was in a “very strong position.”
The banking sector stress, which saw in recent weeks three U.S. banks fail, with HSBC
HSBA,
buying Silicon Valley Bank’s U.K. subsidiary for just £1, and the forced rescue-takeover of Credit Suisse by peer UBS
UBSG,
was “very different” to the financial crisis of 2008, Bailey insisted.
However, the governor admitted that the BoE is “in a period of very heightened tension and alertness” as he noted in a speech the previous day that the regulatory authorities need to recognize that times have changed since nervous depositors used to queue outside bank branches.
Technological advances since the financial crisis of 15 years ago have dramatically accelerated the “speed at which runs can take place” he said, adding in reference to the swift exodus of deposits from SVB that: “It is striking that that happened very quickly — word gets around.”
To Parliament, Bailey described the failure of SVB as “the fastest passage from health to death, really, since Barings.”
U.K.-based Barings merchant bank, established in 1762, was brought to its knees by rogue trader Nick Leeson, who in 1995 ran up $1.3 billion of losses in unauthorized derivatives trades.
Separately, fresh data showed that the BoE still faces a difficult task bringing inflation, currently 10.4%, down to its 2% target. A survey of U.K. food prices, published Tuesday, showed prices rising 15%, their fastest annual pace on record.
Benchmark U.K. 10-year gilt yields
TMBMKGB-10Y,
rose 7.9 basis points to 3.442% and the pound
GBPUSD,
climbed 0.3% to $1.2323.
The moves came despite Bailey also telling Parliament that the recent banking sector stress had tightened credit conditions and that may have a dampening impact on economic activity.
“We always take into account credit conditions when setting monetary policy,” Bailey said.
