A 2008-style bank run seems unlikely, but if it did happen, the sector is much better prepared, says George Hay.
If the UK votes to leave the European Union, its banks should weather the storm.
The Bank of England (BoE) has been in close contact with financial institutions to ensure they have enough cash to deal with mass withdrawals, The Financial Times reported on June 22.
A 2008-style bank run seems unlikely, but if it did happen, the sector is much better prepared.
A big reason why Northern Rock, Royal Bank of Scotland , and the lender now known as Lloyds Banking Group capsised in 2008 was rickety funding structures that depended on rolling over short-term liquidity in the money markets.
RBS and Lloyds now have high so-called liquidity coverage ratios, meaning that they have enough liquid resources to withstand a 30-day market freeze.
The BoE is also better primed. Lenders that get into difficulties can tap the revamped Discount Window Facility, a bank-specific backstop that allows them to preposition eligible collateral at the BoE and swap it in return for liquid gilts for a fee - as well as not disclose they did so for more than a year.
A newer alternative is the Contingent Term Repo Facility, which allows the BoE extensive leeway on collateral, pricing and how long to lend for.
Swap lines between the BoE, the U.S. Federal Reserve and the European Central Bank mean banks should be able to secure any foreign currencies they need.
The last line of defence is so-called Emergency Liquidity Assistance (ELA), advanced by the BoE to banks that run out of eligible collateral.
RBS and HBOS's ELA support peaked on an intraday basis at 61.5 billion pounds in October 2008.
The need for the UK Treasury to indemnify the BoE means this is only a last resort, but the precedent is there.
None of these support operations would prevent British banks being severely hit by any post-Brexit economic slowdown.
Rising unemployment or falling house prices would hurt RBS and Lloyds, which are respectively 70 percent and 95 percent exposed to the UK.
But now that banks have higher levels of loss-absorbing capital, the real impact of a vote to leave would most likely be a further delay to their hopes of ever making decent returns - rather than a 2008-style implosion.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
