BoE looking to enforce capital requirements
(26 October 2015 – United Kingdom) The Bank of England (BoE) hinted that it may exercise powers to force British lenders to hold more capital to counter growing cyclical risks in the financial system.
Sir Jon Cunliffe, deputy governor of the BoE, said its Financial Policy Committee would spend “a lot more of its time on whether and when it needs to address the build-up of cyclical risk in the financial system”.
Sir Jon told the British Bankers’ Association annual conference that the country’s economy had moved from “a very muted phase of the credit cycle” into “a more normal phase of the cycle”.
Other nations have already increased the counter-cyclical buffer for their banks, including Hong Kong, Norway and Sweden. The measure was introduced to the armoury of global financial regulators by the Basel III reforms after the financial crisis.
Should the UK implement measures to increase capital requirements for its banking system, other national regulators may follow and impose it on the British operations of their banks.
The BoE defines the counter-cyclical buffer as “a macroprudential instrument that enables the FPC to put banks in a better position to withstand stress through the financial cycle, by requiring them to raise capital ratios as threats to financial stability increase and allowing them to run down if risks crystallise or if risks ease”.
Sir Jon also poured cold water on the idea that a sea change in the UK political and regulatory climate since the election in May could lead to a rolling back of some post-crisis banking reforms.
“As we learn how the new regulatory framework operates through the credit cycle we may, nay will, adjust — in any direction — reforms that are not operating as intended,” he said.
“But as the memories of the crisis fade, as they inevitably will, we will not reset our underlying tolerance of risks to financial stability. There is no ‘back to future’.”
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