FPC Statement Summary:
- The FPC judged that the overall risks to financial stability form the domestic environment are broadly unchanged at a standard level. However, in some markets excessive weight is being placed on recent benign conditions as an indicator of future risks.
- The FPC is maintaining the countercyclical capital buffer (CcyB) at 0.5% and continues to expect to raise it to 1.0% in November.
- The FPC notes that there is a pocket of risk in the rapid growth of consumer credit but it is not a material risk to the UK’s economic growth.
- However, it could hamper banks abilities to withstand severe economic downturns. Under stress test scenarios, consumer credit losses would be around GBP 30bln which would be the same during the financial crisis (test environment is more severe than the financial crisis and more severe than the 2016 tests). Note, this is just one element of the overall stress tests and thus not indicative towards eventual results of stress tests on November 28th. Nonetheless, under this scenario, losses would require GBP 10bln in additional capital to withstand consumer credit losses.
- As such, in the coming months, a targeted top-up buffer (‘PRA buffer’) will need to be introduced but will need to wait for the upcoming stress test results before implementations. Note, that this will be a targeted approach and not a common approach.
- The aggregate CET1 capital ratio of major banks has risen to 14.3% of risk-weighted assets.
- Under the IFRS 9 accounting scheme (to be introduced on Jan 1st 2018) banks will need to set aside provisions for expected credit losses on all loans (as opposed to previously having to consider just those loans that have already fallen into debt). As such, banks will need to set aside provisions in a more timely manner but will not raise overall capital levels.
25 Sep 2017 - 09:30- Forex- Source: BoE
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