MNI 5 Things: BOE FSR Sees UK Debt At Below Average Levels

-- What We Learned From Jun BOE FPC Financial Stability Report

By Jai Lakhani and David Robinson

     LONDON (MNI) - The following are the key points from the June Financial

Stability Report released Wednesday by the Bank of England Financial Policy

Committee:

     - Household and corporate debt levels are well below average and corporate

debt servicing costs are at an all time low. The Financial Policy Committee

(FPC) estimated it would take a 200 basis points (bps) increase in the Bank Rate

to bring debt servicing costs back to average. This suggests that indebtedness

is not a significant barrier to further monetary tightening.

     - UK banks have built up substantially greater capital buffers in the years

since the global financial crash and the FPC deems no additional capital is

required. Consequently, the counter cyclical capital buffer rate remained at 1%.

     - Uncleared over-the-counter (OTC) derivative contracts between regulated

entities remains the key cause for concern from Brexit. The notional value of

these contracts totals to stg29 trillion and a comment from the EU on said

contracts is still not apparent.

     - In contrast to the domestic situation, global risks are elevated and

rising. Levels of debt in China and dollar denominated debt in emerging market

countries excluding China are providing cause for concern. Rising US rates are

pushing the costs of servicing this debt upward.

     - The FPC also noted that Euro Area risk had increased but that UK banks'

direct exposure to Italy is slight, amounting to only 1% of their total

exposures.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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