BoE fears that banks’ capital buffers may be inadequate

Members of the Bank of England’s (BoE) financial policy committee (FPC) have expressed concerns that UK banks’ capital buffers may not be adequate when faced with riskier lending and increasing dangers to the global financial system.

The FPC maintained its countercyclical capital buffer (CCyB) at one per cent. However, “some members noted considerations that might challenge its adequacy”, according to the minutes from its latest meeting published yesterday.

Currently large banks are required to hold the extra capital to be drawn down in the event of another financial crisis. The FPC has said that it will consider the effects of shadow bank lending and looser mortgage standards in particular in its next assessment of banks’ resilience in stress tests at the end of 2018.

The members have warned that “strong risk appetite” since the last bank stress tests could have affected banks’ exposures.

Furthermore, “riskier corporate lending” in the non-bank sector could also leave bank loans at higher risk of default.

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