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BoE orders banks to bolster capital buffers

By Michele Maatouk

Date: Tuesday 27 Jun 2017

BoE orders banks to bolster capital buffers

(ShareCast News) - Banks will be made to set aside an extra £11.4bn in the next 18 months to protect themselves against bad loans.
In its Financial Stability Report on Tuesday, the BoE said there are pockets of risk that warrant vigilance. "Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier. Lenders may be placing undue weight on the recent performance of loans in benign conditions."

It said that increasing the UK countercyclical capital buffer rate to 0.5% from 0% will raise regulatory buffers of common equity Tier 1 capital by £5.7bn. This will provide a buffer of capital that can be released quickly in the event of an adverse shock occurring that threatens to tighten lending conditions.

The Bank said it expects to increase the rate further to 1% in November, bolstering reserves by another £5.7bn.

In addition, it said the Financial Policy Committee will oversee contingency planning to mitigate any risks to financial stability from the wide range of possible outcomes for and paths to the UK's withdrawal from the European Union.

"Irrespective of the particular form of the United Kingdom's future relationship with the European Union, and consistent with its statutory responsibility, the FPC will remain committed to the implementation of robust prudential standards in the UK financial system. This will require a level of resilience to be maintained that is at least as great as that currently planned, which itself exceeds that required by international baseline standards."


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