tv Bloomberg Markets Bloomberg September 7, 2016 10:00am-11:01am EDT
of the bank, it is relatively unusual for a central bank to not have recourse as a mechanism to replenish capital one capital is drawn down. with thea long history bank of england and i understand parts of it, how we got to where we are. but there are certain ways to not have been over -- overcapitalize institution but to have an institution that has effectively capital and could run these types of decisions more efficiently. i recognize that is a big issue to raise. the second point is i think we should be a bit careful, not that you're not being, but in terms of orders of magnitude of risk, the term funding scheme is fully collateralized, over collateralized in the recourse of that is to effectively our
largest financial in two shoes first, then collateral. while the headline figure is tote large, the actual risk the government, to the taxpayer, is very low. and naturally these are all much more detail. in the context of saying you come before us regularly and you , i forthright and so on don't want to suggest this is not going on but i am suggesting you are in an area now, which --y people would consider
outlook. you, whichwe had to i must admit has a circumspect i know this is the view that in the absence of monetary policy, there would be it does not sound like it to me, or have i read something that does not just? >> from my perspective, you have. -- if i don't speak obviously. i do note the chancellor's letter also refers to responsibilities or options or
steps the government could take and he has been public about a potential resetting of policy. read thene would fiscal policy mix. aspects in light of the effective measures of the government, perhaps more detail. coming. you for i want to continue on the theme of funding scheme. looking at the efficacy of the intoy and how it came being. he said, mr. governor at the inflation report conference in august that banks have no excuse for today's announcement.
providers have on tomed percentage cuts their borrowers and the mortgage market with the average falling by 9% in the last month. does that worry you? >> it does not worry us but we are watching it. let me laymen response. the first is for five of the banks, which account for the vast majority of spr lending of actual and likely marginals, they have announced they will pass it on. highly confident and giving testimony that they will pass it on based on conversation. the quote i think is correct and
i think it is 51, smaller lenders. and virtuallyse every case, they have not yet had the board meeting required to make the adjustment. expect the path through. >> there are transition mechanisms. when would you expect that fall to be passed on? how much over which time? would expect the full amount to be passed on over the course of the next few months. we're also focused on what happens of marginal lending, new loans of improved conditions in mortgage markets. note in terms of the
, we are focused on what has passed through and the channel for that is what is happening to bank funding cost. we calibrated this expecting about a 20 basis points fall and they have fallen 21 basis points. the funding element is flowing through two institutions. consumers haveet felt that. >> we are the supervisor. one of the advantages of the of --ure is because because we're direct line of sight in what banks are doing, whether governance processes are, we were able to calibrate, we feel, the scheme so that it provided just the right amount
of offset -- offset to others they had and the quid pro quo of ont is we expect it to pass and satisfied that these are put in place. >> he say you expected to be passed on in the next few months almost the full amount. on new lending, would you expect time?over the >> we are seeing mortgage rates have fallen a bit more than it ,cted in part because of yields the yield curve has moved down more than we might have calibrated at this stage. the asset purchases have been -- thefective
effectiveness of asset purchases have been more akin to the first round of wanted of easing than subsequent rounds. since most lending in the mortgage market, it is on fixed terms. that comingg through. >> how much have we seen that fall by? happy to write to the committee and get precise figures. something steve say theout earlier, you boards of the banks have not met many of thei note rates -- doesrest that surprise or annoy you?
>> i received a few letters myself, yes. i mean it is having a policy in place that directly passes through. of which i ametry now aware. >> you say you supervise the banks but you do not have any say over the interest rate. banks, what sitting ways do you have of ensuring the mechanism works and works quickly and effectively? >> you are right we are not the conduct regulator of the bank. expect competitive competition in the banking sector. this is a very transparent facility with a clear purpose.
everything we can see before hand in everything we have learned since tells us it is appropriately calibrated and having an effect on overall funding conditions to the degree we expected. there is no excuse for passing it on. it becomes a question of whether , but what other factor could be causing to pass it on. we will look into it. we have not yet encountered and i am not aware of circumstance where there are the largest institutions. we have seen it passed on. >> -- >> if you have, i will give you
the counterfactual, where there , that is nott passed on, a competition responsibility >> huge mortgages in of just a small number of banks. >> that is an interesting question. >> one of the things he seemed to be doing to try to ensure these rates are passed on is the term funding scheme. provide 109 pounds of cheaper banks to actively, for try to ensure that these cuts
are passed on. to what extent are you monitoring whether those cuts versusreasing the banks passed on to the consumers? >> es is the short answer. if they are directly availing themselves of the is easily mapped. if i make, but then just a more generalized question of has passed on and who has not, overall funding conditions have improved. if they have not improved for a financial institutions, which will be the case from time to time, then now i am stepping well away, but a credential
supervisor would ask the question, why is that the case? telling usarket something about the health of the institution, is there an issue with business strategy, etc.. perspective, the orders of magnitude of the bank rate cut to the real economy, are already reaching a level expectationsth when you put this in place and from a monetary stimulus perspective come you can feel we are getting the stimulus we expect when we sat down a little more than a month ago. >> the funding for lending with the termtrue funding scheme, you get a better rate if you lend more. , theything cut off access
might not get such a good rate but they would still have access to it. >> yes. the fee steps up from, if you are growing lending, you get a bank rate. if you are lending shrinking, which may be the case for some, then it steps up to 25 basis points, the bank rate, at the extreme. but the purpose is monetary policy transition so the focus is really on passing through the bank rate cut. this is not trying to do multiple things. they're not trying to incentivize lending to one thing we have done was to cut the capital buffers. >> my worry is it could just profitability profitability.
there are conditions. it bit tighter? is the of the answer conditions that put in place worked. the bank rate cut. we expect that to happen in short order with a range of banks and other institutions. we actually do think we have it calibrated appropriately. this in and of itself is not a scheme to incentivize lending. conditions incentivize borrowing, cutting the buffer which releases, which we have
done, releases $150 billion. last year, 2015, economy growing above or at potential. a financial system are going on all -- far -- firing on all facility -- this is an important .oint for anyone listening there is not an issue with access to credit and it should not be an issue of availability to credit in this economy. >> the bank throwing everything i am suggesting is all i worry about is it is not helping the bank meet its target. it could just be helping banks. it does not stop you from eating but it is a generous
scheme for the banks. >> we think the calibration of this is a wash. .> one final question as well as the base rate and the funding scheme, there is the additional asset purchases, including the 10 billion pounds -- versusorate bonds corporate bonds. i wanted to ask you why you voted against those measures and was there anything that happened august that is made you think again? >> [indiscernible] re-fully in my annual report but i will give
you a summary. i had four sets of concerns. i could feel the economy was so some wasow necessary. that is why i supported cutting by 25 basis points. i had cautioned that made me hesitate at that time. my baseline scenario did not suggest very much slowing so given what we knew at the time, i did not think it made sense to provide any kind of stimulus. although the economy appeared to suggesting additional stimulus could lead to more inflation or pressures. to pick up, a better impact on
inflation before providing additional stimulus and provide an overshoot i was comfortable with. finally, i was concerned about the cost of additional stimulus. outweighing the benefits and the cost, a relatively small benefit. happy to talk about it. >> with glass questions in more detail later. welcome again. on the monetary stimulus, are you concerned the combination of monetary stimulus measures combined with the more benign than expected economic backdrop puts us at risk of an asset price bubble? >> a couple of things.
time will tell but some of the confidence improvement is a product of the action. the more benign without -- i would not have it to the same extent. secondly, the value of asset crucially going to be important and we hope very much positively influenced by the major decision that parliament with respect to our relationship and the rest of the world and broader productivity and other tragedies -- strategies.
clearly, it is the responsibility of the financial policy committee not to target throughices per se, but conditions associated with asset price movements, not debt fueled particularly in asset prices. >> he said a few moments ago of credito lack availability in the united kingdom. do you think some sectors are amply providing credit and other operatingmall sectors. manufacturers -- annual supply credit? >> a fair challenge to have the statement qualified. if you have a viable business
idea, if you qualify for a totgage, you should be able find it. there will always be sectors in this economy, any economy, for which credit is more difficult given shifts in their competitiveness, a variety of factors. it has in the case for some time. that access to credit for small and medium-sized has been challenging and certainly more challenging relative history. and has improved with time that should be helped not just but also maintaining restrictions on very high loan to value and loan to income mortgage lending, which encourages banks to use their
balance sheets in a more diversified and less risky fashion. a moment ago that one reason for easing monetary conditions was you were concerned about what parliament might do in terms of the arrangements, which shows a lot of confidence. you said price of the brexit vote that you thought it might lead to a recession. does that remain your view or has your view changed in light of facts on the ground sense? >> i'm not sure i'm going to let the first part of your question stand. you said i said something which i do not recollect. >> he said one of the reasons you were less concerned about asset price in response was we does not yet know how parliament brexit, to imply
that was a risk. opposite, which is the opportunity said that comes opposite,round the which is a pickup with productivity consistent with higher asset prices. to the second bit of your question? vote,said price of the does that remain your view? >> it is obviously a loaded question. around the forecast to when we speak about a forecast, we speak
about central expectation and try to elaborate on the risk. around this forecast, there are scenarios where the economy does not grow, the economy shrinks. we actually provide the information that allows you to having negative growth for a time. has your average expectation gone up or down? since the vote? basically, is it higher now or lower now than it was dry or to the vote? i will answer that subsequent to the actions of the monetary policy committee. it has gone down. >> they have gone down but you
are taking the credit for it. ok. point, it will not surprise you i am returning in the current context, , you will recall on page 21, the weakening in sterling in particular, you think will cause the current account deficit to narrow. are you therefore content to let this play out naturally or do you think there is anything further that the bank or the government should be doing to address this? >> to give orders of magnitude, ,e think consistent with this and this is broad brush, that it is possible current account deficit by the end of the reducedon, could be
below 4% of gdp. it is a considerable adjustment now. we get to benefits. i set it in response to a question at the press conference. years. in the 3% range by 2019. benefits from depreciation on .he exports side takes time we also get a direct benefit from the net investment account as of the structure of private asset holding. that is considerable. what should we be doing? a bank perspective, and this is more monetary policy or financial policy committee that theve, ensuring savings in the economy, is prudent. mix for theright
current account deficit, maybe i should have begun my answer in the right, the relative stimulus monetary policy subject consolidationcal to active macro policy ensure that the consequences of the combination of that are not creating some of the vulnerabilities you highlighted. we have stipulated consistent we have agreement, active macro prudential policy, which we think of this stage, meeting in the next few weeks, but with -- we think it is appropriate. >> does the deficit concern you? mostis on the list of things you are worried about? perspectivemonetary
but as a financial policy perspective, yes, it is one of the concerns. classy set as a consequence of your actions, the risk of recession has gone down. to clarify, do you mean by that has gone down from the hour before or do you mean from before the referendum, in other words, compared to where we were before the referendum, is there risk of recession today? -- befored to rich the referendum, there is less of a risk now. of the risks, i know it seems like such ancient history now, but there were financial stability risks in the immediate aftermath of the recession. reasons we did what we
did on the contingency planning side, it certainly added to the risk of recession. that had not gone as well as it in, we would have different the short term. those not name and share who passed it on? my mortgage has gone down. there should be, spend, spending. that name them. everyone knows who they are and that might help. >> i will take that under advisement. >> we could help if you would let us have the names.
so you have been around a long time. [laughter] talking about shock when it -- it is printable with andresult was going to be has been for a considerable time. over the last 15 years on it. it was easy to find you and get the results. markets seemcial to miss it but that is what we are in the business of doing. . human behavior there is a bias there. in terms of the future, are you on the political intelligence within the bank to be able to predict what is likely to happen?
>> to predict political events, markets can think about the economy and forces within the economy but i think actually political events are hard to predict. markets have had a lot .f weight as have others that is accurate in recent years . i think the bank does not have any special machinery for trying to predict what will happen in politics. [indiscernible] that is an important point. question,referendum some of us thought it was highly
predictable what the result would be. someone looks at what would happen next year that you might have to respond to. you predict there would be an election in germany. germany this year, there is a clear and consistent trend. we suggest it would not be the normal government that germany has had for a long time. on the strands, it is highly predictable. are you looking for that in terms of -- >> if i could just finish my previous answer, it might help answer your next question. we cannot predict accurately better than the pollsters, what is likely to happen in politics. the important thing for us is to be prepared for different eventualities with monetary
policy or financial stability. we could not predict the outcome of greece's interaction with partners which could have had big risks in terms of the euro zone economy and in terms of financial stability. we highlighted those risks and in the probability we will report on, we put a downside because we could see those coming. monetary policy and financial stability, i tried to take those risks into account. risks,ancial stability we can do things the way we did before. the key is not to be able to predict the future but if you would like to recognize it and expect them to be transparent,
put those in your judgment as best you can. you aas going to give prediction. it will betime nowhere near what it has been in the last 20 years. both would create stability in the eurozone. how are you preparing for those possibilities and how great are the risks to the u.k. economy? >> the greek example, there have an other examples in 2011 into to do it, i was familiar with what the bank was doing, where strains in the eurozone and potential stability in the eurozone were more broadly impacted confidence, financial conditions, and the stance of policy, financial stability in
terms of the capital rates and banks. reason and i am not endorsing for obvious reasons these scenarios, but if for error -- for whatever reason, more cute instability wech is from the eurozone, would be very transparent in terms of whether we felt that was affecting the skew of risk, whether we felt it influenced individual views in terms of policy that should be taken, and whether the financial policy had issues, wevising could talk about specific institutions but if we felt institutions should build additional buffers or take business actions accordingly, we would do so.
not saying we am are contemplating any of those things, nor my making any , but if we did feel something was that could have had an impact, you would know about it, testimony through the forecast would most likely show but then potentially to the financial policy committee and specific actions. >> you have made a very public under this committee and a never suggested is inappropriate, but you made it big play of going through the risks. those, the risk of a government in france that cause
a referendum is a risk that is there from next year. that would have big consequences. the risk of the cdu not being in power in germany has huge consequences for the eurozone. that is it -- a possibility on trends. a strong possibility on voting trends this year. can we expect that kind of planning made public next year? >> i would say there are few things, as we sit here today, there are a few things that in orderd to happen for risks to me -- in the eurozone that would rise to the level to have spillovers to the united kingdom.
at this stage, there is not one single crystallizing event, a binary event that would result in a shift. there could be a series of events that build up, that is possible. the euro is unfinished business, we fully recognize that and as a it is less, resilient than it should be. >> a final question, with the onkering you have been doing monetary policy, for good or for of, at this name time, 95% land for housing in england is allocated.
the process, allocation by three years now. if you want to invest and build houses and the new enterprise, large or small, no certainty on land price anywhere, only 5% of england, shouldn't your work be focusing increasingly on these and is inthe economy it now becoming more apparent that a failure to do that is becoming a fundamental weakness and you're not getting home some of the stuff the economy needs to be thriving? committee since i joined has talked at length about productivity growth and how productivity growth in the uk's week and have utterly easier for everyone in the monetary policy
committee's, it is stronger but about howlked a lot there can be reforms outside of the monetary policy committee, not for us to decide that would be helpful. we will not start giving specific recommendations on structural reform. that is not what the committee is about. >> it is nice to see you here. i want to follow up on the final asked aboutve baker of qb in particular. your answer was consistent with made at thet beginning of all this and for the benefit of people listening, i will say what he said.
after policy cannot play a role in informational. cannot set different interest rates for different groups in the u.k. recovery has been for the few rather than the many. so you are saying the wereibutional impact obviously different and these were a side effect. before you remember, the bank of of the did an analysis earlier package of qb in 2012 and that found that the impact meant to thees had at 5% of households gain in wealth to the tune of 185 thousand pounds.
whereas the poorest 50%, it in the valuecrease of their assets at this time. i think you would agree with me these are chunky numbers. the average cost of a house is to 50,000 pounds. the top people are getting through the effective qe to buy another one, that is quite a second. collects it is but i think you have to make an important between the distribution of wealth and the distribution of income. u.k. isue that in the with many other countries, the distribution is very unequal people at the bottom do not hold very much and people at the top end own a lot. -- one of thelicy
mechanisms, to push of asset prices, you will benefit disproportionately the people at the top end. it is also important to point out the policy is not just designed to push of asset prices. it has one effect to push of asset prices and another perfect push-up aren cost, which affect people right through the income distribution. and obviously affects the economy and that is important. one thing the speech actually showed his we have seen an improvement over the last few years. the people at the bottom have compared a little bit to people in the middle. that is because of the economic recovery which is hard was helped by qe. i do not accept qe only goes the wrong way. doubt,s of wealth, no but in terms of the economic recovery and the income, it actually helped people at the bottom tremendously.
i am not criticizing the package that was issued his death the beginning of all of this but i think of my constituents were watching this , 160,000,rage cost they would bill this as a tiny bit complacent. i wanted to argue whether or not the different approach to qe on might be expected to have different impacts from the approach that was used in 2008 in those early years. mean.m not sure what you same proportions. term did not have the funding scheme last time.
the purchase of corporate bonds purely stabilize the market. whether we might hope the impact this time wouldn't be so huge as it was last time? than theirectly government bond program designed to lower borrowing costs of companies, which we would hope increases the incentive to invest. pro -- of itf the is different than before. -- the mechanisms are still there is asset price inflation which will not create much assumption -- consumption. >> let me stop you. >> there is something important. asset prices are not just wish people. for are also collateral
businesses to borrow again. it is not the case that it is just giving money to the rich and does not go anywhere because they do not spend it anywhere. a big part of us stimulating asset prices is if those prices go up, they can borrow and invest more. i was simply reflecting back to you the analysis of the in thatf households showed a lot of money in the distribution did not. i would like to ask you a bit more about this. correct me if i'm wrong, i had thought that people are with the , whent levels of wealth they got wealthier, they are withlikely to use that,
possibly big index. that brings into question, if the second or third or fourth the impact ofs that on the effectiveness of monetary policy? >> it is true if we could devise a post that gave the same amount of income and wealth for everyone at the same time, that would have a bigger impact than a policy that generated more wealth for already rich. i come back to the very important point that the recovery that generates jobs and for people matt -- people at the bottom end, that has an important impact on consumption. despite the fact there are people at the top and getting rich who might not spend very much of the increase wealth, our he works through other parts and it is very effective there and and iswn to be effective
effective again in generating a recovery for a lot of people to benefit. >> i wonder if i could ask whether the but -- whether the bank might undertake the same analysis. maybe in september of 2018, we might look to see you revisit the issue to see what has happened on this occasion or whether it is just a one-way? >> can i just at one point, the chairman made the point a little earlier, the point about accountability and we bank and all in decisions and theytools we have
are not perfect. we have a clear objective. parliament has given us this was the treasury and we have certain talks to implement it. it does have distributional effects. if we were to be in the business then, of deciding what the effects of the, i think we would intorain even further areas where this is really the province of elected politicians. [indiscernible] as i told officials, no, the government has many tools at its whichal in many ways in political choices about how well
can be taken forward. i made the point it is not a system that we have talks and that meet our objectives. we have consequences on distribution. that dealt with everyone equally that would be more effective. >> of course that is true. i do not expect you to solve the problem in this country. i am plenty of the problem, , sinceyou to consider you have gone down a slightly different approach from last time, it has an impact and i think that is completely reasonable. >> and i accept that.
>> on corporate bonds, we had an exchange on a previous occasion. when i was asking why more corporate bonds had been purchased, and i was told on there wasion difficulty selection -- selecting which bonds to buy. simple question, how are you choosing the bonds you are purchasing? >> we are buying pretty much the average of corporate bonds that are in issue here look at the roughly 150 billion stock of investment-grade sterling corporate bonds.
in the sector's we would buy evenly across the sector's, across the sector weighted by is much of the issue represented. collects all of that plus the issuing and she has to make a material contribution to the economy. that means obviously headquartered here and activity we will release in two weeks time, a market key which will go through the exact issues that are there. out of the sterling corporate bond universe, it will be in the order of magnitude of around 100 billion or so that will pass the threshold.
what we want to avoid is in sterling for the purposes of the other side of the economy. we wanted for entities and we will be transparent about who is in and who is out weighted across the sector. thing in its early days that we hoped to see was it would encourage additional -- additional issuance in august is the slowest month so it is a big multiple of what is normally if but after we made this announcement, we are looking for this to have an impact that is eons just what we purchased. it would be very transparent. >> good. my next question was to be making this what does it mean because it sounds positive but
,n fact you are just saying does it reflect the current structure of the economy. mark: let's break away from mark carney and before u.k. lawmakers. the take away when it comes to a word has to be the words rain. he said he is serene about comments since the brexit vote. he has been criticized and some data has improved since then. he is come to with his decisions and says the economy is a bit daughter than the forecast and the recession risk has exceeded. we will continue to focus on this. this is bloomberg. ♪
close on bloomberg markets. ♪ we will take you from san francisco to new york and cover stories out of the u.k. and wrestles. here's what we are watching today. appearingark carney before the u.k. parliamentary treasury committee things confidence has improved because of the central bank's stimulus. we will examine his comments on policy post-brexit. vonnie: the final countdown is on for apple's full product launch. we are expecting a new iphone watches. consideringtors are a criminal charge related to hsbc's foreign-exchanget.