The UK’s banking sector is in a safer position than some of its peers abroad amid concerns about a global banking crisis, an expert has claimed. Earlier this month, Silicon Valley Bank (SVB) had to be saved after its investments in government bonds backfired due to rising interest rates.
Meanwhile, Credit Suisse was plunged into crisis when the Saudi National Bank, a major backer of the Swiss bank, withdrew its funding.
As numerous experts warn of a potential banking crisis comparable to 2008, Russ Mould of AJ Bell tells Express.co.uk that the UK is less exposed to the vulnerabilities banks like SVB fell foul of.
He said: “The regulatory goalposts moved in the US in 2018 under Donald Trump. It meant banks under a $250billion threshold didn’t have to abide by the same rules as bigger banks.
“In the UK, that threshold is at about £30billion. Those banks are also tested, they have rigorous capital and liquidity tests and they are stress tested every year. The US regional banks were not.
“Credit Suisse did pass similar tests to those in the UK, but customers had been losing faith in it for some time. That isn’t the case in the UK.
“Since 2007, UK banks have shrunk their assets and taken less risk. They have protected themselves while the regional American banks did the opposite.”
While Mr Mould is more confident about UK banks, he accepts that there remains some risks.
He added: “I don’t want to be the person who stands in the dark and shouts ‘fire’ because that’s how bank trouble starts, but there is always a risk that something unexpected comes.
“They are stress tested for a big dip in GDP, a big jump in inflation, and other issues.
Kristalina Georgieva, said rising interest rates could put pressure on global markets.
She said: “At a time of higher debt levels, the rapid transition from a prolonged period of low-interest rates to much higher rates – necessary to fight inflation – inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies.”
Meanwhile, the vice president of the European Central Bank, Luis de Guindos, warned the ongoing instability could lower growth.
He said: “Our impression is that they will lead to an additional tightening of credit standards in the euro area. And perhaps this will feed through to the economy in terms of lower growth and lower inflation.”