BOE FPC: Risks to UK financial stability from domestic environment are broadly unchanged

The Bank of England (BOE) released its quarterly Financial Policy Committee (FPC) report on Monday, stating that the bank’s Prudential Regulation Authority (PRA) are likely to introduce new capital requirements after November stress tests.

Key Points:

New requirements to be set after Nov stress tests

Increased risk of consumer credit losses over past year means banks will need to hold extra GBP 10bln of capital

FPC judges that overall risks to UK financial stability from the domestic environment are broadly unchanged at a standard level.  However, there are signs in some markets, globally And domestically, of excessive weight being placed on recent benign conditions as an indicator of future risks.  This behaviour encourages greater risk taking, potentially building up greater vulnerabilities.

Still expect to raise CCCB to 1% from 0.5% at Nov meeting with effect from Nov 2018

Brexit poses risks of continuity of derivative and insurance contracts

Increased risk reflects deteriorating loan quality, tougher stress tests inc 4% bank rate

Have loss rate of 20% for UK consumer lending in 2017 compares with 13% in 2016