BOE FSR: Stands ready to cut buffer if conditions deteriorate

The Bank of England (BOE) published its semi-annual Financial Stability Report (FSR) on Tuesday, highlighting that the central bank stands ready to cut buffer if conditions deteriorate.

Summary:

“The FPC is increasing the UK countercyclical capital buffer (CCyB) rate to 0.5%, from 0%. Absent a material change in the outlook, and consistent with its stated policy for a standard risk environment and of moving gradually, the FPC expects to increase the rate to 1% at its November meeting.

In line with its published policy, the FPC stands ready to cut the UK CCyB rate, as it did in July 2016, if a risk materialises that could lead to a material tightening of lending conditions. Banks’ capital buffers exist to be used as necessary to a material tightening of lending conditions. Banks’ capital buffers exist to be used as necessary to allow banks to support the real economy in a downturn.

Consumer credit grew by 10.3% in the twelve months to April 2017 — markedly faster than nominal household income growth.

Will tighten mortgage affordability tests for lenders

Corp bonds, commercial property vulnerable to re-pricing

Plans to raise banks' minimum leverage ratio requirement to 3.25% of exposures ex-CB reserves from 3%

The Bank, FCA and PRA are working closely with regulated firms and financial market infrastructures (FMIs) to ensure they have comprehensive contingency plans in place. The FPC will oversee contingency planning to mitigate risks to financial stability as the withdrawal process unfolds.

Through this work, the FPC is aiming to promote an orderly adjustment to the new relationship between the United Kingdom and the European Union.”