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Financial Stability Report - Mark Carney Faces Treasury Select Committee

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Carney believes that markets are vulnerable to liquidity shocks when rates move up globally and there could be a sharp increase in volatility, but he thinks that the risks are now being borne more by investors rather than core financial institutions.

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Carney believes that markets are vulnerable to liquidity shocks when rates move up globally and there could be a sharp increase in volatility, but he thinks that the risks are now being borne more by investors rather than core financial institutions.

Thanks for the summary... That's a very interesting distinction he appears to be making... Essentially, it says that it is now safeĀ® to raise interest rates - even if asset prices fall - as those risks are not the BoE's responsibility?

I wonder what specific volatility he's talking about? Volatility of bond prices? Volatility of asset prices? Volatility of CDS? Hmmm.

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Carney believes that markets are vulnerable to liquidity shocks when rates move up globally and there could be a sharp increase in volatility, but he thinks that the risks are now being borne more by investors rather than core financial institutions.

Got to hope that's what it's all been about; this reflation. Draw in investors to take on risky positions. Enough messing around; a time for action soon. Tighten up and see the complacent investors rush for the exits, and VI btlers, and older home-owners, suddenly willing to sell for less than "what it is worth" (seemingly always a new peak with them), then allow core financial institutions volume lend on what comes to market to young solvent people.

WSJ: Fed Officials Growing Wary of Market Complacency. June 3, 2014: ...One example of increased risk taking: Issuance of low-rated U.S. dollar-denominated junk bonds last year hit a record $366 billion, more than twice the level reached in the years before the 2008 financial crisis, according to financial-data provider Dealogic.

Many officials appear more inclined to talk about market risks than act to pre-empt them given the worry about cutting off a fragile recovery with early interest-rate hikes. Though risk-taking is on an upswing, they don't see a buildup of serious threats to the broader stability of the financial system.

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They've passed a sufficient amount of the London buck onto the Chinese shadow banks and the Russkis.

CBs thought in 06/7 the risk lay in SIVs and off-b/s vehicles too.

Turned out much of it was still held one way or another by the banking system/counterparties. They just weren't aware of it.

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Plenty of talk about monitoring and vigilance whilst at the same time not really doing anything.

I noticed that Carney was concerned that UK mortgage holders have a history of meeting their mortgage payments whilst cutting other spending.

I wonder when their oft mentioned stress tests results will be available, if ever.

Edited by Blod

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Note how they reel out the supply and demand line on HPI, rather than accede to argument that it might be driven by all the cheap money sloshing around.

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My interpretation is he's saying the banking system is still fecked, there's going to be another crisis and hopefully I won't be employed here when it does blow up.

They always talk in code. Never straight-talking. May as well be politicians. What a waste of time they are.

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CBs thought in 06/7 the risk lay in SIVs and off-b/s vehicles too.

Turned out much of it was still held one way or another by the banking system/counterparties. They just weren't aware of it.

Suppose it's a good job US main institutions, and UK slightly less exposed, are now sitting on a trillion+ more in reserves, this time, after many rounds of QE.*

And who is holding the over-valued assets, and doubled down in the exuberant hunt for yield, with a view central banks always going to cuddle them? The money-never-runs-out forever hpi investor types, not worried about situation, getting on with their lives, instead of being mugs expecting some arbitrary correction in this market.

*(I understand zugzwang's theory they could still have been lending, as only needs fraction of reserves to make big loans.)

http://www.washingtonsblog.com/2013/06/81-5-of-money-created-through-quantitative-easing-is-sitting-there-gathering-dust-instead-of-helping-the-economy.html

It's good it's back to coded talk instead of clear forward guidance total cuddles.

Edited by Venger

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11.13 Carney says that the fear over rising house prices is the direct impact of personal indebtedness on the banking system.

Therefore the BoE is currently undergoing a major stress test based on a worst case scenario of a 35pc drop in house prices, plummeting employment levels, and a three year recession.

That's more like it. The only question is when it all kicks off again, 2014 or 2015?

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Plenty of talk about monitoring and vigilance whilst at the same time not really doing anything.

I noticed that Carney was concerned that UK mortgage holders have a history of meeting their mortgage payments whilst cutting other spending.

I wonder when their oft mentioned stress tests results will be available, if ever.

Historically maybe, when a family home was fifty grand, not now, if HPI disappears in the mind of the masses there will be defaults IMO.

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Plenty of talk about monitoring and vigilance whilst at the same time not really doing anything.

I noticed that Carney was concerned that UK mortgage holders have a history of meeting their mortgage payments whilst cutting other spending.

I wonder when their oft mentioned stress tests results will be available, if ever.

Hang on I thought they had real wage growth in their model? With hpi very high and interest costs as low is there much the boe can do ? I suppose George could do something ! Edited by Ash4781

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Probably already been posted somewhere but this is the concise and reader friendly view from the pcw on where we stand on growth and hpi. They foresee 3% GDP growth for 2014 and 2.6% for 2015. A veritable feast of interesting stats. presented in an orderly understandable fashion that cuts to the chase.

The only think I can't work out is who the bloody pcw are?

http://www.pwc.com/en_IM/IM/publications/assets/ukeo-july14.pdf

Edited by crashmonitor

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He also seems to be saying that whatever happens on increased interest rates it would be mainly beyond his control.

Edited by billybong

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How things have switched. Debtors are prudent, savers are reckless.

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