In an assessment of risks in the credit markets, the central bank’s Financial Policy Committee stressed that consumer debt was a “pocket of risk” in an otherwise stable environment, but decided to force some banks to be more prudent.
Because the level of consumer debt and its riskiness varies across UK lenders, the BoE did not increase aggregate capital buffers but said it would raise the level of capital individual banks need in November when it publishes its annual stress tests.
Barclays and Lloyds are likely to be hardest hit because they have the largest consumer credit books, but the BoE gave no details of the individual results for banks.
UK banks have sufficient capital buffers in excess of the regulatory minimum not to require an immediate increase in the money put aside to offset losses in a downturn. BoE officials said, however, there would need to be an increase in capital held if they wanted to maintain their current level of voluntary capital buffers.
The decision came after the BoE undertook an early stress test of consumer lending over worries that the 10 per cent growth rate of consumer credit was unsustainable.
The BoE said the level of overall credit growth in Britain was “standard”, but “there is a pocket of risk in the rapid growth on consumer credit”. It did not judge this to be a risk to the economy but said some lenders “are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality”.
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Financial Policy Committee statement from its meeting, 20 September 2017
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