Lenders in UK told to build up liquidity

The UK's Financial Services Authority (FSA) has warned Britain's mortgage lenders to batten down the hatches as market conditions will remain "very difficult for a sustained period". Clive Briault, the authority's managing director for retail markets, said lenders should be willing to rein in growth to concentrate on building up liquidity reserves.

"I realise that holding higher levels of liquidity, with longer maturities, is much easier said than done at a time when wholesale funding is much more difficult to raise, the securitisation market has virtually dried up, and loan books sales are harder to achieve," he said in a speech to the Council of Mortgage Lenders.

"But it would be prudent to pay a correspondingly higher price and to forgo some profits to secure this protection, or otherwise to scale back balance-sheet growth."

The bleak statement reflects the authority's growing concern about the financial health of the mortgage industry in the wake of the collapse of Northern Rock and the recent renewed spike in interbank lending rates.

The FSA has been widely criticised for its failure to restrain Northern Rock's aggressive growth, which left the bank exposed when liquidity in the wholesale markets dried up this summer. Mr Briault admitted that he had "under-emphasised" the importance of liquidity risks.

Swiss investment bank UBS has joined the Irish Stock Exchange (ISE) after dramatic cuts in the exchange's trading fees.

The ISE yesterday gave details of a 50 per cent reduction in fees for electronic order book transactions and cut the price for the trade reporting of over-the-counter transactions from as much as €7 to five cent to compete with the London Stock Exchange.

The ISE's move follows the introduction of the EU Markets in Financial Instruments Directive (MiFID), which puts it into direct competition with other European exchanges and is expected to lead to greater levels of cross-border trading.

Other significant wealth managers who may be ISE targets include Morgan Stanley and Goldman Sachs, who do not yet have direct access to the Irish equities market.