Bank of England report is curate’s egg
14 December 2021The Bank of England’s Financial Policy Committee has issued a new Financial Stability Report, investigating the current “health” of the UK banking system and its...
The Bank of England’s Financial Policy Committee has issued a new Financial Stability Report, investigating the current “health” of the UK banking system and its ability to resist shock.
In some ways, findings are positive. Banks have been subject to several “stress tests” and seem to be capable of withstanding severe shock – well beyond the type of shocks envisaged in the FPC’s “central case”.
However, the FPC has also identified risks to financial stability – and to the economy as a whole. As they plan for 2022, food and consumer goods businesses should be aware of the downside risks identified by the FPC:
Uncertainties connected to COVID-19
Strong and sustained increase in residential mortgage rates (more than 150bp)
Instability in other markets, especially China, where failure of a property business has caused concern
High risk taking in UK investors
Risks from new asset markets, especially crypto currencies, where values are especially volatile
The FPC has therefore taken action to develop stability in UK finance, instructing banks to increase their counter-cyclical buffers (CCyB). These are special capital reserves intended to support lending in times of economic stress.
The CCyB rate is currently 0%, but this will increase to 1% with immediate effect and then to 2% in Q2 2022. Banks are thought to have sufficient capital on-hand to meet these demands.
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