LONDON (MNI) – The Bank of England’s interim Financial Policy
Committee considered suspending banks’ individual liquidity guidance at
its June 22 meeting as it sought to stimulate bank lending.
The FPC eventually decided against suspension, but the minutes of
the June meeting reveal how far the committee was prepared to go to
boost bank lending.
The FPC finally agreed to ask the Financial Services Authority to
make clear to banks they were free to use their liquidity buffers at
times of market stress. The FPC agreed that banks should be made aware
that their individual liquidity guidance ratios “were not hard floors
and liquid assets were usable in times of market strain.”
“Members considered whether there was a case for going further by
recommending the suspension or easing of current guidance,” the minutes
said.
The FPC thought that suspending the liquidity guidance “might
provide the clearest possible message to banks that they could reduce
their liquid asset holdings.”
The minutes revealed, however, that the FPC believed that there was no
guarantee that easing regulatory guidance on liquidity would lead to a
fall in banks’ holdings of liquid assets.
The drive to allow banks to reduce their liquidity buffers is one
of a raft of initiatives adopted by the BOE to try and ease credit
conditions and stimulate bank lending in the current adverse economic
climate. The FPC minutes reveal the thinking behind the BOE policy.
In other comments, the FPC said they believed banks’ current
capital appeared to be insufficient in the event of an extreme outcome
in the euro zone debt crisis.
–London newsroom: tel: +4420 7862 7492 email:ukeditorial@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
