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The governor of the Bank of England has dismissed the prospect of an imminent financial crisis, describing last week’s dumping of European bank shares as investors “testing out” lenders and insisting the world is not “at all in the place” it was before the 2008 crash.

Appearing before the cross-party Treasury select committee on Tuesday, Andrew Bailey said officials were being “very vigilant” about market conditions.

He added that officials were considering tightening rules following Credit Suisse’s implosion and that of Silicon Valley Bank, which he described as “the fastest passage from health to death since Barings” — a reference to the British merchant bank that in 1995.

But the BoE governor insisted the UK banking sector remained “very strong”, arguing that the issues that afflicted both SVB and Credit Suisse were idiosyncratic ones that should not imperil the wider global financial system.

“What we saw at the tail-end of last week . . . I think there are moves in markets to test out firms,” Bailey said, referring to a wave of selling that erased 8.5 per cent of Deutsche Bank’s market cap on Friday and wiped 3.8 per cent off the wider Europe’s Stoxx 600 banks index.

The sentiment was echoed by Dave Ramsden, a deputy BoE governor, who said things had become “calmer” in the aftermath of UBS’s shotgun marriage with Credit Suisse.

At the same hearing, Sam Woods, head of the BoE’s supervisory arm, joined international calls for a tightening of liquidity rules designed to make sure banks have enough cash to meet likely requests from depositors.

A run on deposits was a key factor in the demise of both SVB and Credit Suisse, and their supervisors ultimately deemed both banks unviable because they were judged to be days away from not being able to meet depositors’ requests. Credit Suisse was already governed by global rules designed to ensure banks have enough liquidity to cover 30 days of high outflows.

“I think there’s going to be a question for all of us . . . as to whether those outflow rates are quite right,” Woods said, arguing the case for “recalibrating” the metric, known as the liquidity coverage ratio.

Woods also said there was a “legitimate question” about whether the BoE should shift the threshold at which it forces banks to be classed as subsidiaries rather than branches. Subsidiaries, as SVB UK was, must hold their own financial resources and are more tightly supervised than branches.

Under the Prudential Regulation Authority’s current approach, branches typically have less than £100mn of retail and small company deposits covered by the UK compensation scheme, and fewer than 5,000 retail and small business customers.

The officials also warned against any widening of an exemption to ringfencing rules, which HSBC won during its takeover of SVB’s UK business.

Ringfencing rules, unique to the UK and which the government wants to review, force the separation of retail lending and banks’ riskier trading businesses.

HSBC was allowed to put the entirety of SVB’s UK operation in HSBC’s ringfenced entity, even though SVB UK carries out some markets activities.

Woods said: “What you wouldn’t want to do is start with a very small hole in the ringfence and you turn around and suddenly there’s a massive one.”

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