Overview. Chart 1 Tail risk (a) (a) In this simple schematic diagram, the distribution of possible events is assumed to be normal. (b) Probability density.

Overview

Chart 1 Tail risk(a)

(a) In this simple schematic diagram, the distribution of possible events is assumed to be normal.(b) Probability density.

Chart 2 Speculative-grade corporate bond default rate forecasts

Source: Moody’s Investors Service.

Chart 3 Global quarterly syndicated loan issuance

Sources: Dealogic and Bank calculations

Chart 4 Arrears of 60+ days on US second-lien sub-prime home equity loans(a)

Source: JPMorgan Chase & Co.

(a) Year refers to year of securitisation.

Chart 5 Equity prices

Sources: Bloomberg, MSCI and Bank calculations.(a) July 2006 Report

Chart 6 EME sovereign US$ bond spreads and credit ratings(a)

Sources: Bloomberg, JPMorgan Chase & Co. and Standard & Poor’s.

(a) Lines represent logarithmic best-fit lines. Ratings are plotted linearly. Outliers with ratings below CCC in June 2004 (Argentina and Dominican Republic) are not shown.

(b) Trough of US interest rate cycle.

Chart 7 Decomposition of borrowing costs for UKhigh-yield corporates(a)

Sources: Bloomberg, Merrill Lynch, Thomson Datastream and Bank calculations.

(a) The decomposition assumes a debt maturity of 20 years. For details, see Churm, R and Panigirtzoglou, N (2005), ‘Decomposing credit spreads’, Bank of England Working Paper no. 253.

Chart 8 UK PNFCs’(a) capital gearing(b)

Sources: ONS and Bank calculations.

(a) Private non-financial corporations.(b) Gearing is calculated as the ratio of debt, net of liquid assets, to the market value or replacement cost of capital.

Chart 9 US implied forward corporate credit spreads(a)

Sources: Merrill Lynch and Bank calculations.

• One-year forward spread over swaps for BBB US corporate bonds.

Chart 10 LCFIs’ total assets

Sources: Bloomberg, SEC filings, published accounts and Bank calculations.

(a) Other includes (among other items) receivables, investments, goodwill and property.

Table A Change in assessment since the July 2006 Report

Source: Bank calculations.

(a) Assessed change in the probability of a vulnerability being triggered over the next three years. (b) Assessed change in the expected impact on the UK financial system if a vulnerability is triggered

Chart 11 Major UK banks’ and LCFIs’ credit default swap premia(a)

Sources: Bloomberg, Markit Group Limited, published accounts and Bank calculations.

(a) Asset-weighted average five-year premia.(b) July 2006 Report

Chart 12 Major UK banks’ pre-tax return on equity(a)(b)

Sources: Published accounts and Bank calculations

(a) Data for major UK banks, excluding building societies.

(b) Pre-tax return on equity calculated as pre-tax profit as a proportion of shareholders’ funds and minority interests