On 26 March 2021, the Bank of England (BoE) published the Financial Policy Summary and Record of the Financial Policy Committee (FPC) Meeting on 11 March 2021.
Among other things the summary notes:
- Businesses, including many small and medium-sized enterprises, still need to finance cash-flow deficits this year, even as the economy recovers. It will be important for lenders to work flexibly with household borrowers as payment deferral schemes unwind.
- The banking system has the capacity to continue to provide support, even if economic outcomes are considerably worse than currently expected. This reflects the build-up of substantial buffers of capital since the global financial crisis. Major UK banks’ and building societies’ (banks) aggregate Common Equity Tier 1 capital ratio increased to 16.2% at end-December.
- The FPC expects banks to use all elements of capital buffers as necessary, to continue to support the economy through the recovery phase. To this end, the FPC is maintaining the UK countercyclical capital buffer (CCyB) rate at 0% and expects to maintain the 0% UK CCyB rate until at least December 2021. Any subsequent increase would therefore not be expected to take effect until end-2022 at the earliest.
- The BoE and the FCA joint survey of liquidity management in UK-authorised open-ended funds found that many fund managers appeared to have overestimated the liquidity of fund portfolios, even after the experience of the stressed period in March 2020. The FPC judges that the survey indicates that consistent and more realistic classification of the liquidity of funds’ assets is an essential first step to ensuring funds can address mismatches between asset liquidity and redemption terms.
- Reflecting the extensive preparations made by authorities and the private sector over a number of years, the transition period between the UK and EU ended without any material disruption to the provision of financial services.