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Bank of England

Bank of England recognizes Privatbank bail-in by national Bank of Ukraine

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The Bank of England, the central bank of the United Kingdom, has today (14 May) signalled its decision to recognize the decision of the National Bank of Ukraine (NBU) to “bail-in" Privatbank – a process which took place at the time of its nationalization.

Privatbank, which was nationalized by the NBU in December 2016, is largest commercial bank in Ukraine, in terms of the number of clients, assets value, loan portfolio and taxes paid to the national budget. It was nationalized following serious allegations of widespread fraud and maladministration.

The Bank of England's decision relates specifically to the bail-in of four loans made by UK SPV Credit Finance plc (UK SPV) to PrivatBank. UK SPV is a funding conduit of PrivatBank, incorporated in the UK.

Kyrylo Shevchenko, governor of the National Bank of Ukraine (NBU), said: “The nationalisation of Privatbank was carried out under a robust legal process that is fully in line with the laws of Ukraine and international standards.

“In the months ahead, my team and I will continue to work for greater accountability and transparency in Ukraine’s financial services sector.”

Bank of England

UK's #COVID-19 death toll tops 38,000, worst in Europe

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The United Kingdom’s COVID-19 death toll topped 38,000 as of early May, by far the worst yet reported in Europe, raising questions about Prime Minister Boris Johnson’s handling of the coronavirus crisis, writes Andy Bruce.

Figures published by the Office for National Statistics for England and Wales brought the United Kingdom’s official death toll to 38,289 as of May 3 — up nearly 6,000 in the space of a week, according to a Reuters tally of death registrations data that also includes Scotland and Northern Ireland.

While different ways of counting make comparisons with other countries difficult, the figure confirmed Britain was among those hit worst by a pandemic that has killed more than 285,000 worldwide.

The data came a day after Johnson set out a gradual plan to get Britain back to work, including advice on wearing home-made face coverings — though his attempt to lift the coronavirus lockdown prompted confusion.

Such a high UK death toll increases the pressure on Johnson: opposition parties say he was too slow to impose a lockdown, too slow to introduce mass testing and too slow to get enough protective equipment to hospitals.

The data painted a grim picture in care homes, which have been especially hard hit by the virus.

“Care homes (are) showing the slowest decline, sadly,” ONS statistician Nick Stripe told BBC TV.

“For the first time that I can remember, there were more deaths in total in care homes than there were in hospitals in that week.”

Care homes now account for a third of all COVID-19 deaths in England and Wales.

A Reuters Special Report published last week showed care homes bore the brunt of policy designed to shield its hospitals from COVID-19, leaving many of the weakest exposed.

Unlike the daily death toll announced by the government, Tuesday’s figures include suspected deaths from COVID-19, the respiratory disease caused by the novel coronavirus.

In March, Britain’s chief scientific adviser said keeping deaths below 20,000 would be a “good outcome”. In April, Reuters reported that the government’s worst case scenario was a death toll of 50,000.

SICK MAN OF EUROPE?

Even after adjusting for population, Britain still ranks among the countries worst affected by the pandemic, a list that includes Belgium, Spain and Italy.

In Italy, the next worst-hit country in Europe and whose population is about 90% of Britain’s, the death toll stood at 30,739 as of Monday, according to a measure based solely on confirmed cases rather than suspected cases.

Broadly comparable British data on Monday showed 32,065 deaths.

Ministers dislike comparisons of the headline death toll because Britain’s performance in part reflects the fact that it has been quicker to publish comprehensive data on COVID-19 deaths than other European countries.

They say excess mortality - the number of deaths from all causes that exceed the average for the time of year - is more meaningful because it is internationally comparable.

Early evidence, though, suggests Britain is faring badly on that front too.

So far this year, there have been more than 50,000 excess deaths compared to a five-year average, ONS statistician Stripe said.

The ONS said deaths from all causes decreased for a second week running as of May 1, but 8,012 more people than average died in the 18th week of 2020.

(GRAPHIC: Track COVID-19 statistics for your country - here)

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Bank of England

British banks can withstand #Coronavirus fallout on economy - #BoE

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Britain’s top banks and building societies are robust enough to keep lending if the economy were to shrink by 30% in the coronavirus pandemic, according to a stress test carried out by the Bank of England, writes Huw Jones.

The stress test was based on an economic scenario published by the BoE in its Monetary Policy Report (MPR) on Thursday (7 May), in which it said Britain was on course for the biggest economic slump in over 300 years.

Under the MPR scenario, Britain’s GDP drops by almost 30% in the second quarter versus the fourth quarter of last year and recovers as lockdown restrictions are lifted.

Britain has been in lockdown since mid-March and the government is expected to announce some easing of restrictions in the coming days.

The BoE’s pared down, “desk top” stress test showed that banks have the capital buffers to withstand even greater losses than those that result from the MPR scenario, the BoE said in its interim Financial Stability Report (FSR).

Core capital ratios would drop from 14.8% at the end of 2019 to 11% in the second year of the test scenario, still well above their minimum regulatory requirements, it said.

“Overall, in the desktop stress test based on the MPR scenario, banks incur total credit losses of just over 80 billion pounds ($98.86 billion).”

Companies could face a cash-flow deficit of around 140 billion pounds under the scenario, the FSR said.

But usable buffers of capital built up by banks are more than sufficient to absorb the losses under the MPR scenario and, with the support of the government’s lending guarantee schemes, would also be enough to help the corporate sector finance its cash-flow deficit, it said.

The BoE has already told banks they can tap 23 billion pounds in their counter cyclical capital buffers that would support lending of up to 190 billion pounds.

On Thursday the bank held off from further stimulus measures but said it was ready to take more action to support the economy.

DASH FOR CASH

BoE Deputy Governor Jon Cunliffe said that if banks once more failed to provide support, as in the financial crisis 10 years ago, the overall economic outcome would be worse and lead to greater losses for banks.

“On the basis of the scenario and of the desktop stress test, the economic impact of banks failing to provide support to the economy could worsen their own capital positions by around a full percentage point,” Cunliffe said.

The BoE reinforced its encouragement for banks to tap capital and liquidity buffers that are above mandatory minimum requirements, in order to keep credit flowing.

So-called Pillar 2A buffers cover particular risks at individual banks and the BoE said on Thursday they would now be set at a nominal amount in 2020 and 2021, instead of a percentage of total risk weighted assets, to alleviate “unwarranted pressure” on banks.

The BoE set out further ways to ease regulatory burdens so that banks can fully focus on helping businesses and households.

The BoE’s Financial Policy Committee said it was postponing the launch of a climate change-related stress test of banks from the second half of this year until at least mid-2021.

The BoE said it has also paused work on its stress test of insurers, saying it won’t publish the results and will postpone the next test to 2022.

The core banking system, along with market infrastructure like clearing derivatives withstood turbulence and instability in financial markets in March when there was a “dash for cash” as investors responded to lockdowns, the BoE said.

But the market moves brought back into “sharp focus” a number of vulnerabilities in the non-bank sector, Cunliffe said in a reference to open ended funds, some of which had to be suspended.

“The underlying issues in the non-bank sector will need to be addressed in due course,” Cunliffe said.

Market volatility also underscored why the Libor interest rate benchmark needs to be scrapped by the end of 2021, the BoE said.

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Bank of England

BoE's Tenreyro warns UK faces 'extremely large' hit from #COVID-19

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Britain is likely to suffer an “extremely large” hit to the economy because of the lockdown to slow the spread of the coronavirus, and the Bank of England will only be able to limit some of the impact, policymaker Silvana Tenreyro said, writes David Milliken.

Tenreyro, one of the central bank’s nine interest-rate setters, said the BoE was ready to act again if it would help reduce the damage but monetary policy could only be a small part of the answer to Britain’s economic challenge.

“The data we have so far suggest that the drop in aggregate spending already taking place will be extremely large,” she said in a speech published by the BoE, which took emergency action to support the economy last month.

“This is partly by design: to safeguard public health and long-run prosperity, governments around the world have temporarily closed some sectors of the economy and limited consumption and production,” she added.

The BoE cut rates twice in March to take them to a record low 0.1% and launched a record 200 billion pound ($250 billion)quantitative easing programme to support the economy.

Earlier this week Britain’s budget forecasters said the economy could shrink by 13% this year due to the shutdown, its deepest recession in three centuries, and public borrowing was set to surge to a post-World War Two high.

“The aim of our policy actions has been to ensure that the economic effects prove temporary, by minimising business failures and job losses that could cause a lasting reduction in the supply capacity of the economy,” Tenreyro said.

In an online question and answer session, Tenreyro said she had doubts about whether there would be a rapid ‘V-shaped’ recovery of the type that budget forecasters had modelled and said there could be a longer ‘U-shaped’ stagnation.

“It looks like the exit will be less ‘V-shaped’ than one would want. And the question, how long is the bottom of the ‘U’, I don’t have an answer for that,” she said.

DEMAND FALLING FAST

Tenreyro, an external member of the BoE’s Monetary Policy Committee, said her judgement was that in the parts of the economy still able to function, demand was falling faster than supply capacity, requiring continued economic stimulus.

“The MPC will continue to ensure price stability. It also remains ready to take whatever further actions are necessary,” she said.

Figures earlier on Tuesday showed that retail spending had dropped more than 25% since the start of the lockdown, and that a quarter of firms had shut temporarily while those remaining open had put a fifth of their staff on paid leave.

Tenreyro said she could not give any guidance on whether the BoE would need to provide further stimulus after its next scheduled meeting on May 7.

Help for businesses and individuals from the BoE and the government would not be enough to avoid a rise in unemployment which would push down on wage growth and inflation.

Unemployment could rise by 2 million to reach a rate of 10% in the coming months, the Office for Budget Responsibility said on Tuesday.

The Resolution Foundation, a think tank, said 7 million people could lose their job if the lockdown lasted a year.

Tenreyro said she also saw upward pressures on inflation from sterling’s weakness and from higher government spending, though on balance she expected downward pressures to outweigh them when Britain emerged from the pandemic.

“As it did in the past, if there were an overshoot, the MPC would need to assess the speed with which to return inflation to target,” she said.

Temporary changes in spending would make interpreting data hard, she added - especially as shifts, such as greater online shopping and reduced international travel, might prove lasting.

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