Bank of England shows cautious optimism on Financial Stability says KPMG
Commenting on The Financial Stability Report, Karim Haji, EMA and UK Head of Financial Services, KPMG, says
Commenting on The Financial Stability Report, Karim Haji, EMA and UK Head of Financial
Commenting on The Financial Stability Report, Karim Haji, EMA and UK Head of Financial Services, KPMG, says:
“The Bank is cautiously optimistic, relaxing rules on dividend payments whilst also giving the green light for banks to use their capital buffers to the fullest extent if that’s what it takes to keep supporting UK businesses. The decision to hold the countercyclical buffer ratio at 0% until 2021 - which with the implementation lag means the end of 2022 - will help ensure this remains a reality.
“After more than a decade of being told to build buffers, the instruction to use them has seemed a drastic shift but in reality, few banks have needed to make a dent in their reserves. The scale of banks’ capital supports the confidence demonstrated in today’s report, with UK banks remaining resilient to more drastic hits to the economy than those forecasts. That said, it seems notable that there is no warning of potential short-term inflation in today’s report, this could be overly optimistic given the many compounding pressures that remain in light of the pandemic and Brexit.
“The evidence of increased risk-taking in financial markets is clearly a significant concern to the Bank of England, which means firms need to ensure they have robust risk controls and governance around asset valuations and credit standards. The use of third party ‘critical’ technology providers is also firmly on the watch list and whilst it’s broadly recognised that a cross-sector, cross border approach is needed, the realities of achieving that will be challenging to say the least.”
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