Conflict between Russia and Ukraine has jumped up the list of feared potential shocks to the financial system, the Bank of England revealed yesterday.
The Bank’s latest biannual survey of potential threats to stability showed geopolitical concerns among the top seven risks for the first time. Of those surveyed, 57 per cent cited this as a key danger this year, up from 13 per cent in the second half of last year.
A possible conflict in the Russia/Ukraine region was the second most common risk mentioned by market participants behind fears of a renewed downturn. This latter fear was raised by 61 per cent of respondents, albeit lower than its previous survey following better economic news.
The Bank surveyed 72 risk managers between 7 April and 12 May, a time when street battles were taking place in separatist regions of Ukraine.
However, concerns of a massive external shock to the British financial system have receded once again: 64 per cent now consider the probability low or very low over the next year, while just 28 per cent think this is the probability between one and three years out.
Financial firms are, meanwhile, increasingly worried by the possibility of a collapsing property market.
Falling house prices were cited as a threat by 40 per cent of respondents. It was the third time in succession that the poll has seen an increase in the proportion of financial risk officers worried about house price falls.
The Bank’s outgoing deputy Governor, Charlie Bean, recently warned about low levels of volatility and potentially mispriced risks as central banks move away from emergency policy settings in an uncertain global environment.
The Bank’s deputy Governor for financial stability, Sir Jon Cunliffe, has described spiralling property prices as “the brightest [hazard] light” on regulators’ dashboards.
Trust in the financial system rose slightly, with 24 per cent describing themselves as completely confident or very confident in the stability of the system over the next three years and 69 per cent fairly confident.
Outside of the top seven risks, household/corporate credit risk, UK political risk and risks surrounding monetary and fiscal policy have crept up in prominence. Financial firms described geopolitical risk as the most difficult problem for them to manage.