THE BANK of England has ordered UK banks to set aside £11.4 billion by the end of this year to ensure they can deal with any unexpected shocks from Brexit and the booming consumer-credit market.
In its latest Financial Stability Report the Bank’s Financial Policy Committee said that as there are “pockets of risk that warrant vigilance” it is asking lenders to create an immediate capital buffer of £5.7bn with the expectation that it will ask for a further £5.7bn to be set aside when it meets again in November. The total will have to be accumulated by the end of 2018.
“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 committee said.
In particular, with consumer credit increasing rapidly and mortgage lending conditions becoming easier, the committee wants banks to insulate themselves in case they are “placing undue weight on the recent performance of loans in benign conditions”.
The Bank is also bringing forward its assessment of stressed loans to “inform the FPC’s assessment at its next meeting of any additional resilience required in aggregate against this lending”.
In terms of Brexit, the FPC said it is focusing on scenarios that “could have most impact on UK financial stability”.
One example is that services provided by UK banks to EU consumers “could be dislocated” while “the fragmentation of service provision could increase costs and risks”.
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