The Bank of England warned on Tuesday of “challenging” risks to financial stability following the vote for Brexit as it released £150bn of lending to households and businesses by relaxing regulatory requirements on the banking sector.
 |
| Bank of England’s Brexit plan is working, insists Mark Carney |
As it published its twice-yearly report, the Bank said the risks it had feared ahead of the Brexit poll had started to materialise, with sterling plunging to 31-year lows and the shares of banks falling by 20%.
“The current outlook for UK financial stability is challenging,” the Bank said in its financial stability report.
As a result, the FPC, chaired by the Bank of England governor, Mark Carney, is monitoring a number of sectors closely. It is on alert for threats to financial stability from rapid growth in buy-to-let mortgage lending and also for the impact of downturn in the commercial property sector.
This is Carney’s third statement since the the referendum result. He first spoke on the morning the result was announced, reassuring investors that the Bank would do what was necessary to keep markets stable and have £250bn available to boost banks. And last week he warned that a cut to interest rates, already at a historic 0.5% low, was possible to boost the economy.
The day after Standard Life revealed it had suspended pricing in one of its property funds for 28 days, the Bank said withdrawals from funds could increase the downward pressure on the sector as foreign investors – which account for 45% of the value of transactions in commercial property since 2009 – withdrew.
The Bank is also concerned about the ability to keep financing the UK’s current account deficit – “high by historical and international standards” – at a time when investment inflows into the UK are slowing.
“The FPC is monitoring all forms of capital inflow and risk premia on a range of UK assets. It judges that during a prolonged period of heightened uncertainty there is a risk that overseas investors could continue to be deterred from investing in the United Kingdom,” the Bank said.
The Bank said risks had been mounting since the start of the year and increased since the vote on 23 June. The pound has experienced its largest two-day fall in modern post-war history, the Bank said, referring to the plunge in sterling following the referendum result, which resulted in the currency hitting its lowest level against the dollar in more than three decades. These falls in sterling, however, could help narrow the troublesome current account deficit.
As well as relaxing the amount of capital banks must hold, Thread
needle Street’s financial policy committee – set up to look for risks in the financial markets – is also making life easier for insurance companies and emphasising its willingness to keep offering cheap loans to the banking sector.
It took immediate steps to release banks from a requirement to hold £5.7bn of capital in ”countercyclical buffers”, which are intended to be built up during periods of calm and released during periods of stress. This will increase banks’ capacity for lending to households and businesses by up to £150bn.
The Bank of England had only started to implement these buffers at the start of the year – when it deemed conditions were returning to normal after the banking crisis. It will not now change them until June 2017. Banks are holding £130bn more capital than they were before the 2008 crisis and more than £600bn of assets that can sold be quickly during times of crisis. The Bank stressed that other regulations on the banks were not being relaxed.
guardian
0 Comments