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LONDON, Nov 30 (Reuters) - Bank of England Governor MarkCarney was speaking on Wednesday after the BoE said Royal Bankof Scotland will have to bolster its capital holdings.
The BoE also said the financial system faces a "challenging"outlook due to risks posed by leaving the European Union andother factors including the recent U.S. election.
Following are comments made by Carney at a news conference:
CARNEY ON BANK STRESS TESTS
"Taking the results of the stress test and these plans intoaccount, the FPC judged that, in aggregate, the banking systemis capitalised to support the real economy even under a broad,severe and synchronised stress scenario. As a result, the FPCdid not require any system-wide macroprudential actions on bankcapital."
RBS' STRESS TEST FAILURE
"That institution (RBS) has made a lot of progress over thelast several years, particularly around its core businessfranchise."
"Its challenge is that it still has legacy issues associatedwith that. There's misconduct costs, there's impaired assets,they're still working through the so-called non-core assets onwhich they have made progress."
"They have made progress over the course of the year, theyhave identified and made an announcement today about additionalactions they will be taking."
"To be clear they're not talking about raising capital,they're talking about reducing certain types of assets andincreasing capital through other activities as oppose to goingout and raising capital."
"I will say that the orders of magnitude of their plans,what they can realise from their plans, are much bigger than thesize of the short fall in the stress test."
GLOBAL RISKS, CHINA
"The most significant risks to UK financial stability areglobal. Growth in China is increasingly reliant on rapid creditexpansion. Since the global financial crisis, Chinesenon-financial sector debt has risen by around 100 percentagepoints relative to GDP, and currently stands at 260 percent ofGDP.
"This is extraordinary leverage for an advanced, let alone,an emerging economy. There are signs that capital outflows fromChina and other emerging economies have begun to pick up inrecent months and may accelerate further depending on the degreeand pace of increases in US market interest rates."
UK CURRENT ACCOUNT DEFICIT
"One channel by which global risks could affect UK financialstability is via the current account. At 5.9 percent of GDP, theUK current account deficit remains large by historical andinternational standards, and its smooth financing depends onforeign investor appetite for UK assets.
"A sharp adjustment to capital inflows could test financialstability by tightening financing conditions for the realeconomy, adding pressure on the currency and worsening thetrade-off between growth and inflation."
BREXIT, THE EURO ZONE AND BANKS
"In some euro-area economies, sovereign debt positionsremain vulnerable to higher borrowing costs and weaker growthprospects that could be associated with trade or politicalrisks. Moreover, challenges to the resilience of parts of theeuro-area banking system remain.
"Additional risks to the euro area could emerge as aconsequence of the UK's withdrawal from the European Union.Banks located in the UK supply over half of debt and equityissuance by continental firms, and account for over threequarters of foreign exchange and derivatives activity in the EU.
"If these UK-based firms have to adjust their activities ina short time frame, there could be a greater risk of disruptionto services provided to the European real economy, some of whichcould spill back to the UK economy through trade and financiallinkages."
BREXIT CLARITY FOR UK FIRMS
"It is preferable that firms know as much as possible aboutthe desired endpoint, what type of relationship would be there,and as much as possible, as early as possible, about thepotential path to that endpoint."
"Having a degree of clarity, when appropriate, will helppromote a smooth and orderly transition."
"I would stress that it's still very early days... Article50 has not yet been triggered. The timing of those plans and thepoint at which firms would need to put them into action is stillsome way off."
UK AS "INVESTMENT BANKER FOR EUROPE"
"It is important to recognise that the United Kingdom iseffectively the investment banker for Europe."
"More than half the equity and debt raised is raised in theUnited Kingdom by firms based in the United Kingdom, quite oftento investors based in the United Kingdom."
"It's absolutely in the interest of the European Union thatthere is an orderly transition and that there is continualaccess to those services."
POTENTIAL U.S. TRADE POLICY CHANGE
"There is this possibility that the slow down in the growthin world trade, which we have seen over the past few years,accelerates because of discrete policy initiatives potentiallyfrom the world's largest economy."
"And while that might not directly affect the United Kingdomif it slows the pace of global growth - and we're an opentrading nation one of the most open nations in the world - it'sgoing to have a knock-on effect through this economy."
"This is more of a slow burn issue, sand in the gears,headwind for the global economy as oppose to a sharper shock ifany of it were to actually materialise."
EXPOSURE TO ITALY
"There's some well-known, some well-documented issues there.The exposure of UK banks to the Italian banks is very low."
"So exposure to the (Italian) banks extremely low, exposureto Italy very manageable." (Reporting by UK bureau)
