The short answer is, unsurprisingly, yes. During a recent speech at the London School of Economics (LSE), Richard Sharp of the Bank of England’s Financial Policy Committee (FPC) articulated many people’s anxieties with regards to the state of banks in the United Kingdom. Such sentiments are similarly echoed around the world.

In his speech, Sharp outlined five issues that keep him concerned for the state of the financial system in the United Kingdom. Specifically:

• The last crash occurred in part by a failure on the part of central bankers and other regulators to appropriately address glaring risks to the stability and resilience of the British and worldwide financial systems
• The economic state of the United Kingdom is still in a vulnerable stage
• While there has been a move towards more stringent capital requirements for banks, there is still a sense of undercapitalization in financial institutions
• The practice of quantitative easing on a global scale has led to the inflation of the price of assets. This can corollary lead to instability in markets. It could also have the negative impact of incentivizing investors to hoard their assets, which would lead to a drop in economic activity
• There is an omnipresent external risk to domestic economies. Sharp used the example of the United Kingdom and the rest of Europe. Noting that the European Union is the UK’s largest trading partner, the prospect of deflation could lead to corresponding effects across the Channel

Sharp ended his speech with the grim yet realistic statement that, although there have been great strides towards increased safety and soundness, “… it is perfectly conceivable that new shocks or difficulties are just around the corner.”

Source: The Financial Policy Committee of the Bank of England; an experiment in macroprudential management – the view of an external member