Bank of England was warned about Brexit property fund problems

Bank Of England Building

The Bank of England was warned of the possibility that commercial property funds may be suspended because of the rate of withdrawals prompted by the Brexit vote.

Documents released by Threadneedle Street show that policymakers were told in meetings on 28 June and 1 July of the outflows from funds investing in commercial property.

These funds usually offer instant access to cash but as they are invested in properties such as office blocks and warehouses, their assets are hard to sell quickly. Since 4 July, seven funds have taken steps to either stop withdrawals by suspending trading or reducing the fund’s value. Aberdeen Asset Management is cutting the value of its fund by 17%, the largest reduction yet.

The record of the meeting of the financial policy committee (FPC) – established to look for risks in the financial system – shows that the City regulator, the Financial Conduct Authority (FCA), had issued a briefing on commercial property funds.

“The FPC was briefed by the FCA on the extent of outflows from these funds and on the possibility that funds could suspend redemptions in the near term,” the record of meetings on 28 June and 1 July shows.

The record is published a week after the FPC announced a further £150bn would be freed up by banks to encourage lending and also warned that property funds could exacerbate movements on prices if they were forced to sell.

The FPC is chaired by the Bank of England governor, Mark Carney. The Bank also released two paragraphs redacted from the last quarterly meeting in March outlining aspects of contingency planning made ahead of the 23 June referendum.

As well as being ready to pump billions of pounds into the financial system, the Bank said “supervisors were engaging with banks, insurers and central counterparties on their contingency plans for risks related to the referendum, including for managing funding and liquidity risks in sterling and foreign currency”.

“Several firms had reported that they were conducting stress tests with referendum-related strategies of varying severity.” This was not reported in March as it was deemed to be against the public interest.

Following the referendum result, banking shares fell 20% and volatility in sterling against the dollar hit its highest level in postwar history, the Bank said.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Tuesday 12th July 2016 10.04 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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