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By Jamie Satchithanantham and David Robinson
LONDON (MNI) - The following are the key points from the November
Financial Stability Report released Tuesday by the Bank of England
Financial Policy Committee:
- UK banks are well placed to resist severe economic shocks. The
2017 stress test, replicating conditions more severe than the global
financial crisis, showed that the UK Banking Sector would be resilient
enough to provide support to the real economy through a range of Brexit
scenarios, including a 'disorderly' one.
- The 2017 annual test scenario reflected a 2.4% fall in global GDP
(worse than GFC), a 4.7% fall in UK GDP, UK jobless rate rising to 9.5%
(worse than GFC), house prices down 33% (largest on record), commercial
real estate prices down 40%, Bank Rate peaking at 4% and sterling down
- But things could be worse still for the banks. A combination of a
disorderly Brexit, a severe global recession and stressed misconduct
costs could result in more severe conditions than the stress test. In
this case, capital buffers may be drawn upon while lending to the real
economy would be more likely restricted. The BOE will do more work on
this in 2018.
- The counter cyclical capital buffer rate will rise to 1% from
0.5%, with binding effect from 28 November 2018, establishing a
system-wide UK buffer of stg11.4bn. The FPC will revisit the adequacy of
the 1% CCyB in the first half of 2018 when the overall risk environment
had evolved. Raising the CCyB is designed to lock-in the improvement in
banks' capital positions.
- Away from Brexit, consumer credit was once again cited as another
potential source of risk to the financial stability. In the year to
September, the outstanding stock of consumer credit was up 9.9% with
consumer borrowing equal to 1.4% of consumer spending. Reduced overseas
invest appetite was also seen as a risk, through its channels to the
UK's external balance sheet and the current account.