On 24 March 2020, the Bank of England (BoE) published a record of the Financial Policy Committee (FPC) meetings held on 9 and 19 March 2020.
Key points in the record include:
- having built up the resilience of the UK financial system over recent years, the FPC judges that major UK banks are well able to withstand severe market and economic disruption. Major UK banks have Tier 1 capital levels of around 17.5% of risk‑weighted assets — more than three times higher than before the global financial crisis;
- the FPC further judges that household vulnerability is considerably lower than before the financial crisis;
- the UK countercyclical capital buffer (CCyB) creates an additional cushion for banks to absorb potential losses and continue lending. The FPC can release this buffer in a stress, meaning that banks can keep lending to households and businesses. This means that banks absorb rather than amplify shocks, and banks can be part of the solution to any stress, rather than contributing to the problem;
- at its policy meeting on 9 March, the FPC reduced the UK counter cyclical buffer rate (CCyB rate) to 0% of banks’ exposures to UK borrowers with immediate effect. The rate had been 1% and had been due to reach 2% by December 2020. This action supports further the ability of banks to supply the credit needed to bridge a potentially challenging period, and reinforces the FPC’s expectation that all elements of the substantial capital and liquidity buffers that have been built up by banks can be drawn down as necessary; and
- the release of the CCyB amounts to £23 billion of capital, which can support up to £190 billion of bank lending to businesses. That is equivalent to 13 times banks’ net lending to businesses in 2019. The FPC has also made clear that it expects to maintain the 0% rate for at least 12 months. Due to the usual 12‑month implementation lag, any subsequent increase would not be expected to take effect until March 2022 at the earliest. In addition, the pace of return to a standard‑times rate in the region of 2% will take into account how far banks’ capital has been depleted through this period and thus the task to rebuild capital.