Central banks raised oversight of currency markets to an unprecedented degree around Britain’s shock vote to leave the European Union, demanding detailed updates from major trading desks every six hours throughout last week, industry sources said on Monday.
One senior banker with a major global bank said the calls, never before conducted as often or consistently, had been seen as a sign that officials were worried an “Out” vote could trigger the sort of financial sector problems not seen since the collapse of Lehman Brothers in 2008.
The US Federal Reserve, the Bank of England (BoE) and the European Central Bank (ECB) all declined to comment on the calls, their conduct, content and aims.
But some officials pointed to a general promise by the Bank of England and others to increase supervision of markets around the vote and said the calls were chiefly evidence of greater – and so far successful – coordination of regulatory efforts by the world’s big central banks.
The BoE said ahead of the vote it could ask banks for daily checks on their funding levels if need be. It has also become the norm for the ECB to check more regularly in times of stress with banks about short-term liquidity or the situation in currency or derivatives markets.
“These calls have been going on. They are reflective, I think, of a more systematic and modern approach from the regulators,” said one industry source.
“If they make these things regular and keep to a pro forma then it is easier to compare notes with other central banks on what is happening. You can infer also that there is an awful lot more conference calling going on between the central banks.”
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A second source, the senior banker, said he had been present on a handful of the calls to his bank, held consistently every six hours during major market business hours since the vote on June 23.
“There are all sorts of regulators present on these calls,” he said. “Typically they want to know about liquidity volumes, they want to know of any clients in stress, any margin calls, certain points in the market that may be of stress. I assume they are holding them with other banks, too.”
He said in his experience of the FX market, stretching back to the 1990s, regulators had never taken such action.
While central banks were deeply involved with the plumbing of the banking sector in the worst moments of the 2008 crisis, currency and other major over-the-counter markets have not demanded that level of supervision in the past decade.
“Classically, we would get this kind of call every so often from one individual in the markets section of the central bank and he would go away and write up a report on the conversation and it would get passed up the line,” the senior banker said.
“They want to know a granularity of what’s happening that we have not seen before. It shows the sensitivity and the interest to not have a Lehman-type event.”
There was much speculation ahead of the vote that the Bank of England might have to step in, potentially with the support, direct or otherwise, of other central banks, to provide a bid in the market that would steady sterling as it fell.
In the event, only the Swiss National Bank has said it intervened directly in currency markets to oppose more gains for the franc, while the BoE has confirmed it did not, even as sterling dived almost 18 cents against the dollar on June 24.
Traders reported bids from Japanese banks on the night that consistently opposed gains for the yen past 102 per dollar, but data last week showed the Bank of Japan had not intervened.
One member of the ECB’s Governing Council, asking not to be named, said that they and other central banks had been prepared for a lot more volatility than materialised and that cooperation with the Bank of England had been “exemplary”.
He said they got regular updates and that BoE Governor Mark Carney personally was in touch many times.