China tops list for global financial risk, Bank of England chief Carney warns

Business | 12 Sep 2018 3:46 pm

China was ''top of the list'' in terms of international financial risk to the UK's financial services sector, the Bank of England Governor Mark Carney says.

In an interview with the BBC, in which he outlined four risks to the UK's financial services sector, which is one of the largest in the world and supports more than a million jobs, Carney cited the high levels of debt supporting the Chinese economy and questions over whether it is sustainable, as the third risk.

Carney said the UK central bank had been looking at how banks in the UK would fare if the Chinese economy took a substantially negative turn.

He said that in terms of international financial risk, China was "top of the list.''

Carney told the BBC that when he thought of the major risks globally, China was at the top of the risk register.

"China is a great source for growth for the global economy, it's an absolute economic miracle, lots of positives," he said.

"At the same time, their financial sector has developed very rapidly, and it has made many of the same assumptions that were made in the run up to the last financial crisis.

"So there's a big so-called shadow-banking sector in China, there's a lot of lending that's based on very good past-experience.

"But there's so much lending that the quality has gone down quite substantially.

"The level of debt is enormous relative to the size of the economy."

Carney said that the fourth risk to the UK financial services sector is a catastrophic cyber-attack which would render a major bank unable to operate.

"Could something like this happen again?" Carney said. "Could there be a trigger for a crisis - if we're complacent, of course it could.

"History teaches us that there are financial crises from time to time around the world, we can come up with 60 or 70 examples over the course of the last century.

"We want to have our banks, the infrastructure, the core of our financial system in a position that, if they make a mistake, if they take too many risks, they bear the consequences, not the system."

He told the BBC that the first risk was high levels of UK household debt which led the Bank of England to put in place stricter rules on lending to people who may not be able to pay back mortgages or other loans. The second risk is that Brexit ends with a "no deal" which would mean major changes to how the financial system operates in the UK and disruption to the deep ties with the European Union.

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