LONDON – Resolving Chinese property developer Evergrande Group’s struggle with $300 billion in liabilities has been fairly protracted but did not threaten financial stability in Britain, Bank of England Governor Andrew Bailey said on Wednesday.
China was clearly trying to reduce its reliance on the property sector for growth and the BoE was closely watching events at Evergrande, Bailey told parliament’s Treasury Committee.
“We are seeing contagion within China but it seems to be being kept under control. They are managing it by effectively preferring onshore to offshore creditors, we do have to note. But obviously it is a concern to us,” Bailey said.
Two banks in Britain, Standard Chartered and HSBC, have large exposures to east Asia.
BoE Deputy Governor Jon Cunliffe said Britain’s banks were resilient, holding enough capital to withstand another COVID-19 like shock to the economy without requiring government help.
Lawmakers also asked about the end of the use in Britain of London Interbank Offered Rate for loans and other financial contracts that took place in December. This was one of the biggest changes in markets in decades and had raised concerns about financial stability risks.
“I am very pleased with the way it has gone,” Bailey said.
While the demise of Libor in Britain has been smooth after six-and-a-half years of preparations, there was still work to do in whittling down the number outstanding contracts still referencing Libor, which is being replaced by the BoE’s overnight Sonia rate.
