Bank of England checks commodity exposures of financial institutions – by Neil Hume, Martin Arnold and David Sheppard (Financial Times – October 8, 2015)

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The Bank of England has asked British financial institutions to reveal their full exposure to commodity traders and falling prices of raw materials amid concerns over the impact of the oil and metals slump.

The Bank of England’s Prudential Regulation Authority, which was set up in 2012 to ensure the “safety and soundness” of banks in the wake of the financial crisis, sent the requests to the UK’s big banks in the past week, according to three people with direct knowledge of the matter.

The PRA move that mirrors similar inquiries it made earlier this year about the banks’ exposure to Greece and to China, was prompted by a sharp drop in the shares of Glencore, the biggest publicly listed trading-house-cum-miner at the start of last week.

It was not provoked by any immediate concerns of a default, a person familiar with the matter said, but it was checking that banks knew what their exposures were to individual commodity houses and that they had examined the wider knock-on effects if a large commodity trader was to collapse.

The PRA also wants to ensure banks — many of whom trade oil and metal themselves as well as financing commodity dealers and companies — are prepared in the event of a prolonged slowdown in the sector.

The 30 per cent one-day crash in Glencore’s share price last week was followed by a flurry of notes from City banking analysts about the exposure of lenders to the industry.

A person familiar with the move said: “This is not something we do every month, it is situation-specific,” adding it was a specific response to the recent share price moves of Glencore and other commodity trading houses.

Glencore’s share price has rallied hard since last week after a series of statements reaffirming the financial soundness of its business and renewed promises to execute a debt reduction plan that should reduce its $30bn net debt by a third.

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