MNI BRIEF: BOE Sees Financial Risks Back At Pre-Covid Levels

UK domestic financial stability risks have returned to pre-Covid levels and it took a step back to normality by announcing plans to progressively raise banks' capital buffers, the Bank of England Financial Policy Committee noted in the latest Financial Stability Review.

The FPC cited stretched asset market prices, high global debt levels and highly indebted corporations among the stability risks and announced that it was raising the countercyclical capital buffer (CCyB), which it cut to zero when Covid hit, up to 1% to be implemented in a year's time and on up to 2% in Q2 2023, assuming the economy recovers as expected. The shift in the risk assessments shows the Bank working on the assumption that the economic recovery continues but with risks exacerbated by the debts firms and government have taken on through the Covid shock and also exacerbated by investors' search for yield.