The Bank of England’s Financial Policy Committee (FPC) assesses the outlook for UK financial stability by identifying the risks faced by the financial system and weighing these against the resilience of the system.
The FPC has now published a statement following its policy meeting on 23 March 2016. In particular, the FPC notes that the outlook for financial stability in the United Kingdom has deteriorated since it last met in November 2015. Some pre-existing risks have crystallised, drawing on the resilience of the system. Other risks stemming from the global environment have increased. Domestic risks have been supplemented by risks around the EU referendum.
Weighed against these developments, the resilience of the core banking system has improved further since November 2015, though investor expectations of future profitability have weakened, with possible implications for banks’ ability to build resilience in the future. In some financial markets, underlying liquidity conditions have continued to deteriorate.
In light of its assessment of the outlook for financial stability, the FPC has decided to increase the UK countercyclical capital buffer rate from 0% to 0.5% of risk-weighted assets. The new setting will become binding with effect from 29 March 2017, at which time the overlapping aspects of Pillar 2 supervisory capital buffers will be lifted. This will increase transparency and sharpen the incentives of the buffer system.
View FPC statement from latest policy meeting, 29 March 2016