BoE cut bank captial requirements
(5 July 2016 – United Kingdom) The Bank of England (BoE) has reduced bank capital requirements following effects of June’s Brexit vote.
The Wall Street Journal reported earlier this week that this move — in which the central bank eased the requirements in an effort inject nearly US$200 billion into the UK economy, with credit extended to households and businesses — is a first.
The easing of capital constraints placed on banks means more credit can flow into the British economy, with the hopes that the nation can avoid economic stagnation or decline.
The central bank made the surprise announcement in conjunction with its biannual report on the state of financial stability in the region.
Under the terms of the capital requirement easements, the countercyclical capital buffer (an equity cushion that is designed to be drawn down in an onerous financial climate) has been reduced to zero, and WSJ noted that this is a reversal from previous attempts to boost that measure to as much as 50 basis points. Currently, the benchmark interest rate is zero percent (and a rate cut could be in the offing).
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