BoE gives lenders all-clear and extends zero capital buffer
The Bank of England has said the UK’s lenders are strong enough to withstand an economic shock much worse than the one currently predicted, but extended the period in which banks can hold reduced capital buffers to try to encourage lending.
Despite the all-clear, the Bank’s Financial Policy Committee (FPC) said that Brexit could cause market volatility and disruption to some users and services.
It comes as the UK enters a new period of uncertainty. Some scientists are recommending a new lockdown in London, while Brexit negotiations are stalling and a no-deal Brexit has become a stark possibility.
The Bank of England is confident that banks are stable and in a good place to keep lending to businesses and households. Yesterday, it allowed banks to restart dividend payments, having lent on them to stop in March to preserve money for lending.
Now, in another effort to help banks keep lending, the BoE said it would ease the requirements for how much capital banks have to hold as buffers.
It said banks’ countercyclical capital buffer rate would be kept at zero until at least the end of next year. It was cut from one per cent to zero in March, freeing up around £190bn to be lent out.
‘Most Brexit risks’ taken care of
The FPC said that “most risks” to financial stability in the UK stemming from Brexit have been taken care of.
But it warned: “Financial stability is not the same as market stability.” It added that “some market volatility and disruption to financial services, particularly to EU-based clients, could arise”.
In a press conference, BoE governor Andrew Bailey said there were limits to how much the Bank could prevent disruption.
“I don’t want us to be in a situation, were [instability] to occur, where people say, ‘Well you haven’t done this and you haven’t done that’. But I have to say there is a limit to what we can do.”
Yet Bailey said he was confident that the UK would remain a major financial hub. “London is a global financial centre, has been for a very, very long time, and will continue to be so,” he said.