Bailey – Bank Reserves To Settle Higher Than Previously Expected

BOE Governor Bailey gives a speech on “Banking today” - see here. Some pertinent points:

• Bank reserves will settle higher than previously expected: “I expect the future level of reserves to fall from where it is today (£467 billion) [major UK banks held £10bn of reserves at the BoE before the financial crisis], and to settle at a point which is likely to be determined more by the financial stability demand for reserves – the traditional Bagehot point. Pre-positioning assets at the Bank of England will make that level lower than otherwise as Bagehot said, but not below a certain point. I will go a bit further and say that my best guess today is that the demand for reserves by the banks will settle at a level higher than we would even in the recent past have expected. That may be for more than one reason, of which one may well be the lessons of last year.”
• UK banks' valuation discount a puzzle: “One remaining puzzle is the market valuation of the large UK banks, which by the way is not uniform unsurprisingly. With interest margins restored to more normal levels, and loan impairments subdued by historical standards, this puzzle deserves further study.”
• *BAILEY: BANKS SHOULD USE BOE LIQUIDITY MORE EXTENSIVELY - bbg