–BOE FPC: Some Bank Capital Raising Could Worsen Markets, Wider Economy
–BOE FPC: Banks Capital Build Up Shouldn’t Constrain Lending
London (MNI) – The Bank of England’s Financial Policy Committee has
warned banks against raising further capital if it adds to market
instability and has urged them not to constrain lending.
Regulators have previously repeatedly made the case for banks to
build-up capital, but the BOE’s newly formed Financial Policy Committee
issued caveats to this mantra in its policy statement issued Wednesday.
The FPC said that while banks “should take any opportunity they had
to strengthen their levels of capital and liquidity” this should be done
“without constraining lending to the wider economy.”
The FPC also advised regulatory body the Financial Services
Authority to encourage banks “to manage their balance sheets in such a
way that would not exacerbate market or economic fragility.”
The FPC said there had been “severe strains in financial markets”
and concerns over banks’ vulnerabilities were adding to these market
strains – that is, creating a negative feedback loop
It said that at present “some actions taken to raise capital or
liquidity ratios could potentially worsen the feedback loop between the
financial sector and the wider economy and so should be avoided.”
With market turbulence high and the economic recovery weak, the BOE
FPC statement highlights the difficulties facing banks if they want to
boost capital ratios at present.
The FPC statement follows its second formal meeting, held on
September 20.
–London newsroom: tel+44 207 862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
