Bank of England says UK
faces 'challenging period' for financial stability
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[September 22, 2016]
LONDON
(Reuters) - Britain still faces a "challenging period" for financial
stability despite resilience seen after the European Union referendum,
and rules for banks must remain stay tight, the Bank of England said on
Thursday.
Britain's government is keen to ensure London retains its place as
Europe's leading financial center even after the country leaves the EU,
but the BoE said there was no case to loosen bank capital rules.
"Although financial stability has been maintained in the United Kingdom
through a period of volatility ... the United Kingdom faces a
challenging period of uncertainty and adjustment," the BoE's Financial
Policy Committee said in a quarterly statement.
With UK-regulated banks' future access to EU markets unclear, Britain's
government is likely to come under pressure from the industry to make
London a more attractive location.
The Confederation of British Industry has already called for banks to be
removed from the "naughty step", after a prolonged regulatory crackdown
following the financial crisis.
But the BoE said that "irrespective of the particular form of the United
Kingdom's future relationship with the EU", Britain's financial system
needed "robust prudential standards".
The FPC said the government's 'Help to Buy' mortgage guarantee scheme
had not posed a risk to financial stability during the past year of its
operation.
The central bank said use of the scheme had declined significantly, and
accounted for just 25 percent of high loan-to-value lending in the first
three months of 2016, down from 70 percent in 2014.
The scheme is due to come to an end later this year, and new finance
minister Philip Hammond will have to decide whether to extend his
predecessor George Osborne's project. The BoE said it did not expect a
big impact on lending if the scheme closed.
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The
FPC made no new regulatory recommendations, and stood by its decision in July to
reverse a move made earlier in the year that could have increased banks' capital
requirements.
The increase recommended in March was linked to an expected upturn in lending,
but the central bank now expects economic growth to slow sharply over the coming
year.
However, it said it would undertake a regular review of banks' lending in
November "to insure against the risk of a marked loosening in underwriting
standards and a significant rise in the number of vulnerable households."
The BoE will also publish its stress test of banks, which will include looking
at how they would cope with the risks created by China's rapid lending growth.
One area where the BoE said risks had already materialized was in Britain's
commercial real estate sector, where it said transactions were now at the lowest
since 2009.
In July and August, several real estate funds blocked withdrawals as investors
rushed to take out their money before the value of properties was marked down.
(Reporting by David Milliken and Huw Jones)
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