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The Financial Crisis In Graphs - Telegraph

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The Bank of England today publishes its latest snapshot of the state of the financial system, the Financial Stability Report. Now, reports come and go, but this is one we ignore at our peril. Why? Because back in 2006 the FSR happened to warn, in quite vivid language (for the Bank) of the possibility of a crisis in the financial sector; it warned that British banks could face a major securitisation freeze in the coming years; it pinpointed the growing gap between what they were lending and what they had in deposits; it warned that this could eat into their profits significantly.

The FSR came closer than almost anyone else to diagnosing how the crisis would begin. Unfortunately, no-one took much notice. The rest, of course, you know.

But the lesson is to take notice of the FSR. As Mervyn King pointed out at his recent Treasury Select Committee hearing, it is the only meaningful tool the Bank has (for the moment at least) to do anything about financial stability*.

So what does the report say this time around? The key message, as sketched out in the story in the newspaper today, is that the markets remain in a real state of strain. The problems at the heart of the crisis – over-borrowing, skewing your balance sheet so you borrow short and lend long (maturity mismatch, economists like to call it), securitisation – are still an issue. Anyone supposing this crisis would have proven the catharsis necessary to rebalance the financial sector will be disappointed. Now, in time, as the economy recovers, one presumes these issues will be ironed out, as banks try to cut back their lending and put right the problems that got them here in the first place. But, according to the Bank, this has not happened yet, with the result that the financial sector remains extremely vulnerable to further shocks. Should the economy slump further and more households default, banks could find themselves in need of more capital - something the OECD warned about earlier this week. And does the Government really have much scope left to pump extra money into the system? Erm, let’s hope we don’t have to test the issue.

Anyway, the real gems in these reports are usually the charts, so I’ve picked out a few of the most telling and interesting to illustrate a few issues.





Finally, this is an illustration of the extent to which the UK is both reliant on and vulnerable to the financial system. Our banks are massive in comparison to our GDP. This is why the UK is particularly sensitive to the financial crisis, and why assumptions that we should have an easy ride out of this are wide of the mark.

There are a couple of more charts at the link.

Good job we didn't have all our eggs in one basket, god we'd be screwed then.

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  • 404 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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