Charts of the Week

The Bank of England's (BoE) aggregate balance sheet statistics for the Monetary and Financial Institutions (MFIs) provide a macroeconomic picture of the UK banking system. They illustrate the contraction of bank balance sheets until December 2015 (-19% compared to January 2010). This was mainly the result of the decline in outstanding loans to the resident non-financial private sector, whose debt was returning to more sustainable levels. Non-resident claims and interbank transactions also contributed to the decline in bank balance sheets.

The trend has reversed since 2016 (+ 19% between December 2015 and March 2019), but the balance sheet of the UK banking sector has not yet returned to its 2010 size in terms of value or as a percentage of GDP (GBP 4,122 bn or 195% of GDP in March 2019 vs. GBP 4,288 bn or 279% of GDP in January 2010). The recovery is driven by the recovery of outstanding vis-à-vis the resident non-financial private sector (+ 17% after -20% between 2010 and 2015), and for non-residents (+ 21% after - 15%). The interbank market remained at a low level, partly driven by the BoE's operations* (+ 68% after + 49%).

*such as quantitative easing or term funding scheme implemented by the BoE to inject liquidities


Interest rates on US federal government debt have declined significantly in recent months. With the yield on 10-year Treasuries at 2.1%, the Federal government’s cost of borrowing has fallen to the lowest level since September 2017.

President Donald Trump is bound to be pleased. The supremacy of the dollar offers him the privilege of being able to widen the deficit almost endlessly, at a time when the appetite for US Treasuries seems to be inexhaustible.

Yet the stronger demand for Treasuries is also a warning signal: it indicates that investors are seeking safe havens as they form more cautious expectations. In the United States, the decline in yields is also a faithful indicator of a deterioration in the business climate.


Chart (a) shows short-term dynamics in non-resident net portfolio investments (equities and bonds) following the elections in Brazil, Chile, Colombia and Mexico (ie LAC-4).

In Brazil, a rebound occurred after the election which followed a period of increased risk aversion as a result of the truckers’ strike (May 2018) and emerging market sell-off (August/September 2018). However, confidence remains very fragile as Brazil stands out as the country where, on a twelve months rolling sum, non-residents have remained net sellers (chart b).

Net purchases have also turned positive post-elections in Colombia and Mexico however with a lag in the latter case owing possibly to concerns over NAFTA and commitment to fiscal responsibility under the new administration. In Chili, non-resident investors have remained net buyers but the appetite post-elections slowed down reflecting the government’s struggles to win support for its structural reform programme.

On the Same Theme

United Kingdom: About Brexit 6/11/2019
The deadline for Brexit has been extended to 31 October. However, it is far from certain that this delay will be for any help in getting out of the impasse.
Six questions about Brexit after the European elections of 23 May 2019 6/5/2019
What do the results of the European elections tell us? Does Prime Minister May’s resignation change things?Can the Withdrawal Agreement still be saved? Is there still a risk of a no-deal Brexit? Are we heading towards early elections? How is the UK economy holding up?
United Kingdom: Financial services strengthen trade surplus vis-à-vis the European Union 5/2/2019
The United Kingdom has had positive trade balances with the rest of the world since 1966 and the European Union (EU) since 2005. The financial services sector is a major contributor. As far back as the Office of National Statistics (1966) statistics of foreign trade in financial services show, the sector has always had a trade surplus. The same has been true for the EU since 1999, for which this surplus even increased fivefold until 2011 (GBP 21.5 bn). The decline observed between 2012 and 2014 was almost erased between 2015 and 2018 (GBP 20.4 bn). The UK financial services sector has a surplus vis-à-vis each of the major EU economies, starting with France, the EU market with the largest surplus in the EU since 2014 (GBP 4.5 bn in 2018). The situation, however, is likely to be weakened by Brexit.
False start 4/19/2019
By opting to leave the European Union (EU) without any exit plan, the United Kingdom has come face to face with an impossible choice. Week after week, the Brexit impasse has revealed the British Parliament’s incapacity to make decision, starting with the ratification of the divorce terms, the fruit of 2-years of negotiations by Prime Minister Theresa May. In the end, the Brexit was simply postponed. First set for 29 March, then 12 April, the deadline for exiting the EU has now been extended to 31 October (a Halloween treat?). This date could be moved forward if the UK finally manages to ratify the withdrawal agreement, which it has rejected time and again. But the most probable scenario is that the UK will extend its participation to the EU, at least for a while…
Brexit: The shape and scope of financial implications 4/4/2019
Brexit started as a surprise, with the majority Leave vote in the UK referendum on June 23, 2016. In the financial sphere, more specifically, Brexit implies a loss of European passporting rights for the UK and thus less integration between the European Union and the leading financial centre of London. The trade in financial services between the two zones will now have to meet the requirements of two separate sets of regulatory and supervisory authorities, rather than just the requirements of a single regulatory framework as at present. At the very least, this will hold operational uncertainty for some time to come. This edition of Conjoncture aims to sketch out the main lines of the changes to the regulatory framework that financial institutions will have to address because of Brexit, and to identify the main challenges.
Brexit update 1/24/2019
On 15 January 2019, UK MPs rejected the proposed Brexit agreement reached by EU Heads of State two months earlier. With 432 of the 634 votes going against the deal, this result has significantly weakened Prime Minister Theresa May in future discussions with the EU and with Members of Parliament. Today almost anything looks possible, starting with a delay in the official date of the UK’s departure, currently scheduled for 29 March.
Brexit, the cost of uncertainty 1/18/2019
Market reaction suggests that the parliamentary vote, with a wide majority, against the Brexit deal which had been negotiated with Europe, has reduced the likelihood of a no-deal Brexit. Whether this feeling of relief lasts will depend on how the discussions on possible outcomes evolve. The economic headwind which comes with this prolonged uncertainty, for the UK but also for the companies in the EU which trade with the UK, will not go away soon.
Brexit: after the vote 1/18/2019
As widely expected by markets and political commentators, Prime Minister’s May Brexit deal was defeated in parliament last Tuesday. She then survived a no confidence vote and has to present her plan B to parliament on Monday. The challenge is huge.
Large UK banks could withstand a major shock under certain conditions 12/21/2018
In 2018, the Bank of England (BoE) brought forward the publication of its stress test results so that MPs could have enough time to consider them before voting on the draft Brexit deal, which was initially scheduled to happen on 11 December 2018 . Evaluated banks started the 2018 BoE’s stress test with an aggregate Common Equity Tier 1 (CET1) 3.5 times higher than the level seen before the 2008 crisis according, to BoE estimates. It has been rising constantly since 2014, which means that UK banks have been strengthening their capital positions.  The BoE is satisfied with the 2018 results since each of the seven banks assessed would keep its CET1 capital above the minimum requirement even in the event of a shock deemed to be more severe than the 2008/09 crisis, and sufficiently severe to cover a disorderly Brexit scenario. Based on these results, along with other data, the BoE’s Financial Policy Committee maintained the level of its countercyclical capital buffer for the whole banking system – on top of regulatory prudential requirements – at 1%.  

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