CITY regulator, the Financial Services Authority (FSA), has stepped up scrutiny of UK banks’ exposures to foreign government debt after fears of a European sovereign debt meltdown gripped European stock markets.
An FSA spokeswoman said: ‘We have been holding discussions with the banks and their auditors in relation to their sovereign exposures.
‘What we are looking for is greater consistency and disclosures across firms to give the market clear information.’
On Wednesday, the FSA announced that it ‘has today published a Consultation Paper (CP) and Discussion Paper (DP) on its proposals for Recovery and Resolution Plans (RRP), required of financial institutions.
‘The publication also covers policy proposals aimed at reducing the impact of firms’ failure in relation to their investment business, client money and custody assets holdings.
‘The CP covers the requirement for banks and large investment firms in the UK to prepare and maintain Recovery and Resolution Plans and the DP explores matters relevant to the resolution of financial services firms.’
Because of concerns over its exposure to Greek debt, French bank, Société Générale became the focal point of Wednesday’s massive fall in European banks’ share prices.
The cost of insuring Société Générale’s senior bonds hit a fresh record. Speculation about a downgrade of France’s sovereign debt, a bigger bailout for Greece and the bank’s ability to raise funds also put the SocGen share price under pressure.
Banks’ overnight borrowing from the European Central Bank hit a three-month high on Thursday as prices for inter-bank lending showed Europe’s banks increasingly unwilling to lend for longer than overnight.
France came under fresh pressure yesterday to convince speculators it can deliver on debt targets and keep its triple-A credit rating after new data showed the country’s economic growth had ground down to zero.
Zero growth in the second quarter of 2011 came after 0.9 per cent growth in the first, statistics agency INSEE said, noting that the main cause was a drop in household consumption.
Capital Economics analyst Jennifer McKeown said that the zero growth data ‘may add to investors’ fears of a possible downgrade of French sovereign debt.’
French ministers have battled all week to head off speculation that France will be the next country to lose its top credit status after the United States was stripped of its triple-A rating last week.
