'Financial markets are capable of weathering challenges', says Economic Secretary to the Treasury, Harriett Baldwin.
29 June 2016 - On Thursday, the people of the United Kingdom took the decision to vote to leave the European Union;
It is not the decision I, or the government, wanted.
It was a clear democratic decision on a higher turnout than in a general election.
Because that decision has been taken,
And now we must look forward.
As anticipated, the markets have been volatile,
But Britain’s financial services sector has been through trying times before.
I saw these first-hand during my 22 years working in financial services,
The crash of 1987, the ERM crisis, Long Term Capital Management’s collapse, the tech bubble and the banking crisis.
Financial markets are capable of weathering challenges.
They adapt quickly. They find new opportunities
They price in and offer ways of managing risks like these.
I think British banks are well placed to manage the uncertainty resulting from the last week’s vote.
Since the financial crisis in 2008, both the government and the industry have been working hard to ensure that the UK has a safer and stronger banking sector.
There have been fundamental reforms to our regulatory architecture to put the Bank of England back at the centre of the UK’s economic and financial systems,
And compared to pre-crisis, there is significantly more capital in the system to guard against difficult times - UK banks have raised over £130 billion of capital, and now have more than £600 billion of high quality liquid assets.
So our institutions have enough capital and liquidity to withstand a period of severe market volatility;
The Bank of England’s most recent stress tests show this.
In short, we are prepared.
The government and financial regulators have spent the last few months putting in place robust contingency plans for the immediate aftermath in the event of a “leave” vote.
We’ve worked systematically with each major financial institution to make sure they’re ready to deal with the consequences of this outcome.
Swap lines were arranged in advance so that the Bank of England can lend in foreign currency if needed,
And the Bank was ready to make an immediate statement the next morning.
As you know, the Governor was clear that the Bank of England stands ready to provide £250 billion of funds, through its normal facilities, to continue to support banks and the smooth functioning of markets.
The Chancellor has discussed our co-ordinated response with the Finance Ministers and Central Bank Governors of the G7.
And the Chancellor and the Governor have continued to be in regular contact on contingency plans to be used if needed.
So not only is the industry prepared for this outcome, policy makers are ready to respond to it.
Now I don’t need to tell you that the UK’s financial system is intricate and complex.
But behind all the technical terminology and statistics is a critical social determinant - confidence.
Confidence in our financial system and confidence in its institutions.
We must not let that confidence be shaken.
The UK is the most international, most experienced financial centre in the world.
London consistently leads the rankings as the world’s global financial capital.
It has the best business environment;
The most impressive infrastructure;
The best human capital;
A very strong regulatory framework;
And the top overall reputation.
The UK also has natural strengths in financial services; a central time zone, the English language.
And our country boasts an unrivalled pool of investors
Not only in terms of size, but in quality and international experience,
And this is supported by world leading legal and professional services.
It is for these reasons that I am confident that we will adjust and overcome the challenges presented.
The government is now focused on preparing for the negotiations with the EU.
For my part, I want us to agree an economic relationship with the rest of Europe that provides for the best possible terms of trade in financial services.
Only the UK can trigger Article 50, and as the Chancellor made clear on Monday, we should only do that when our new Prime Minister has spelled out a definite view about the new arrangement we are seeking with our European neighbours.
In the meantime, and during the negotiations that will follow, there is no change to people’s rights to travel and work, and to the way our goods and services are traded, or to the way our economy and financial system is regulated.
Let’s not forget that Britain is the strongest major advanced economy in the world.
Growth has been robust, employment has reached record levels.
The budget deficit has been brought down from 11% of national income, and was forecast to be below 3% this year.
And today, I want to leave you with this message- the British economy is fundamentally strong, we are highly competitive and we are open for business.
Source: Gov.uk (Contains public sector information licensed under the Open Government Licence v3.0.)