BoE: UK Banking System Could Support Economy Even In Case Of “Hard” Brexit
The UK central bank stated, that Britain's banks could deal with a hard Brexit in March 2019, if it is necessary. The BoE's Financial Policy Committee (FPC) said the UK banks are holding enough capital and won't need anymore to face any turbulence in markets if Britain leaves the EU next March without a deal. The FPC also said capital levels at banks were now high enough that it would leave unchanged their so-called countercyclical capital buffer or CCYB at 1%, binding from the end of November.
The FPC said Britain has made good progress in ensuring that outstanding derivatives contracts do not pose a risk to the British economy if there is no Brexit transition deal in place by next March. Still, it said that Britain and the EU need to take action. The EU has yet to say what steps it would take to avoid potential disruption to 29 trillion pounds of uncleared swaps contracts if there is a hard Brexit.
The Financial Policy Committee also intends to review this month whether the buffer should be raised due to other risks that build up over the course of a credit cycle. These include mortgages granted at high loan-to-income ratios that bump up against the BoE's ceiling and unsecured consumer lending. This buffer aims to ensure that banks build up capital to guard against risks as the credit cycle picks up, which they can then draw on during a downturn. It applies on top of other internationally-required buffers.