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Britain’s banks in pictures

June 26, 2009

The Bank of England’s twice-yearly financial stability reports stand out from most central bank documents because they tend to be both insightful and well-written. What really makes them worthwhile, however, is that they contain a trove of fascinating data, much of it presented in arresting graphics.

The latest edition, released this morning, does not disappoint. For example, the Bank’s eggheads have waded into the debate over bank accounting by attempting to put a mark-to-market value on all of Britain’s banking assets.  This shows cumulative losses approaching 400 billion pounds, compared to just 100 billion raised in fresh capital.

fsr09jun15

Of course, Britain’s banks have recognised nothing like this level of losses, mainly because they do not have to write down assets held in their banking books until borrowers default. And many bankers believe losses will never be as bad as market prices suggest. It is also true that there has been the most almighty rally in recent months. In mid-March, the Bank reckons, global mark-to-market losses on global financial assets had reached $25 trillion. That figure has now shrunk to $15 trillion, according to the Bank.

The Bank also has some fascinating charts that remind us how much Britain’s banks still depend on wholesale funding.

fsr09jun2

At the moment, maturing wholesale funds are being financed by issuing government-guaranteed debt, or by the Bank itself through its Special Liquidity Scheme. But these measures are temporary. As the Bank concludes:

The expiry of the SLS in less than three years’ time and the eventual reduction in central bank lending around the world will add further to the need for alternative sources of funding….the major UK banks might conceivably need to shrink their balance sheets or find alternative sources of funding of around £500 billion over the period to 2013, as various forms of public sector financing are progressively withdrawn.

In other words, we’re not out of this yet.

 

 

 

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