28 November 2017

Bank of England: Financial stability report, November 2017

The FPC is raising the UK countercyclical capital buffer rate from 0.5% to 1%, with binding effect from 28 November 2018.

The stress-test scenario and the resulting setting of capital buffers reflect the FPC’s assessment that, apart from those related to Brexit, domestic risks are at a standard level overall, and that risks from global debt levels, asset valuations and misconduct costs remain material.

There are also potential risks arising from the macroeconomic consequences of some possible Brexit outcomes.

However, the combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test. In such circumstances, capital buffers would be drawn down substantially more than in the stress test and, as a result, banks would be more likely to restrict lending to the real economy.

The FPC will reconsider the adequacy of a 1% UK countercyclical capital buffer rate during the first half of 2018, in light of the evolution of the overall risk environment.

The FPC continues to assess the risks of disruption to UK financial services arising from Brexit so that preparations can be made and action taken to mitigate them.

The FPC and PRC have completed an exploratory exercise examining major UK banks’ long-term strategic responses to an extended low growth, low interest rate environment with increasing competitive pressures from FinTech. Although banks suggest they could, by reducing costs, adapt without major strategic change or taking on more risk, there are clear risks to this.

The FPC has completed an annual review of risk and regulation beyond the core banking sector. It is not recommending any changes to the regulatory perimeter at this stage.

Executive summary

Complete book

Stress testing the UK banking system: 2017 results

Systemic risk survey results – 2017 H2

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