On 11 December 2020, the Bank of England (BoE) published its latest Financial Stability Report.
Key headlines from the report include:
- UK households and businesses have needed support from the financial system to weather the economic disruption associated with the COVID-19 pandemic. The financial system has so far provided that support, reflecting the resilience that has been built up since the global financial crisis, and the extraordinary policy responses of the UK authorities.
- The Financial Policy Committee (FPC) judges that the UK banking system remains resilient to a wide range of possible economic outcomes. It has the capacity to continue to support businesses and households 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.
- Financial sector preparations for the end of the transition period with the EU are now in their final stages. Most risks to UK financial stability that could arise from disruption to the provision of cross-border financial services at the end of the transition period have been mitigated. The mitigation of these risks reflects extensive preparations made by authorities and the private sector over a number of years. However, financial stability is not the same as market stability or the avoidance of any disruption to users of financial services. Some market volatility and disruption to financial services, particularly to EU-based clients, could arise.
- Irrespective of the particular form of the UK’s future relationship with the EU, and consistent with its statutory responsibilities, the FPC remains committed to the implementation of robust prudential standards in the UK. This will require maintaining a level of resilience that is at least as great as that currently planned, which itself exceeds that required by international baseline standards, as well as maintaining UK authorities’ ability to manage UK financial stability risks.
The report also contains a table (at 3.A) which is a checklist of actions to avoid disruption to end-users of financial services at the end of the transition period. The checklist reflects the risk of disruption to end-users including households and companies where no further arrangements are put in place for cross-border trade in financial services at the end of the transition period on 31 December 2020. The risk assessment takes account of progress made in mitigating any risks. It assesses risks of disruption to end-users of financial services in the UK and, because the impact could spill back, also to end users in the EU. Risks of disruption are categorised as low (green), medium (amber) or high (red).