Saturday, 19 August, 2017

Bank of England orders banks to set aside more cash

Footsie trading sideways ahead of Bank of England update Footsie trading sideways ahead of Bank of England update
Alfredo Watts | 29 June, 2017, 09:06

British lenders have been ordered to put aside an extra £11.4 billion ($14.5 billion) over the next 18 months by the Bank of England, which said on Tuesday it was raising a key capital buffer created to protect against financial shocks amid concerns over spiraling consumer lending.

In a statement, BoE governor Mark Carney (pictured) said the Bank would "oversee contingency planning to mitigate risks to financial stability", as negotiations evolve.

According to the Investment Association, 40 per cent of the assets managed in the United Kingdom are managed for overseas clients with around half of this on behalf of clients outside Europe.

In March, the Bank highlighted consumer credit as a greater risk than buy-to-let mortgages.

A similar logic applies to online shopping.

An annual estimate of banks' potential losses in a hypothetical recession has also been brought forward urgently from November to September because of the rapid growth in consumer debt.

The FPC also tightened standards for mortgage lending, requiring banks to stress test borrowers' ability to repay loans at three per centage points above the standard variable rate.

The Bank of England has told British banks to rise capital requirements for banks in case of an economic downturn.

Drivers owe £58billion on vehicle finance, according to the Bank of England.

Mr Cunliffe appeared to back Bank governor Mark Carney, who recently said "now is not yet the time" to hike rates despite growing dissent on the Monetary Policy Committee (MPC).

The total stock of vehicle finance has increased by £30 billion since 2012.

Carney cited the sharp build up in vehicle financing - both in volume and the move towards "personal contract purchasing" deals (where buyers pay monthly repayments). If they buy less then business will suffer.

The price for buying the vehicle is agreed at the outset based on the predicted value of the auto in the secondhand market.

It also noted that growth in dealership motor finance reflects a recovery in new vehicle registrations and a shift in how cars are purchased, away from ownership.

While primarily focusing on issues of consumer credit in the United Kingdom, the report also identified potential weaknesses in the Chinese economy and valuation concerns in corporate bonds and United Kingdom commercial real estate as potential impediments to stability. The banks will have 18 months to meet the increased limit.

But warning about higher rates is no substitute for the real thing.

Over the past 12 months families have binged on auto finance and credit cards, according to policymakers who raised the alarm in the Bank's financial stability report.

This is stricter than the current rules which allow lenders to assume a smaller increase in interest rates.

Mr. Carney dismissed that criticism.

But last night he came under fire for not acting more quickly to curb reckless lending. I don't think we're getting over-scrutinised. There does seem to have been an element of complacency'.

The overall leverage ratio for banks is also being raised from 3% to 3.25%.

The MPC voted 5-3 in favour of leaving rates on hold at 0.25% at its most recent meeting, but the City was taken aback when the Bank's chief economist, Andy Haldane, said he had been close to abandoning his no-change stance. It expects to raise the buffer to 1pc in November, the level that reflects an economy that is running normally.

The FCA has announced a raft of measures to help people in credit card debt, including waiving or cancelling interest and charges if customers can not afford to curb their liabilities through a repayment plan.

Households on short-term fixed rate mortgage deals are particularly vulnerable to unexpected increases in interest rates, according to the Bank of England. However, in a worrying sign for the London property market the Bank warned West End office prices have been stretched far above levels that can last in the longer term.