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Summary
- The Bank of England asked banks to continue lending to companies and households.
- BoE said UK banks can support both businesses and households as they continued to reel under the pressure of the pandemic.
- The BoE said that it would not increase buffer rates till 2022.
The Bank of England (BoE) asked banks to continue lending to companies so that they can sustain through the Covid-19 financial crisis, and it said that the banking system was robust enough to withstand the crisis. These were some of the takeaways of the Financial Policy Committee (FPC) after its meeting.
The BoE said that the UK banks are capable enough to support both businesses and households as they continue to reel under the pressure of the pandemic and that the banks’ higher capital levels would allow them to continue lending even after absorbing big losses. The government would be closing the emergency lending schemes for new applicants this month.
Also read: UK Govt Borrowed £19.1 Bn In February, Highest In 28 Years
The FPC said that banker would have to be flexible with retail borrowers, and it also said that it would be in the interest of the banks to keep lending to businesses that are viable. The BoE said that it does not expect to increase buffer rates till 2022, which would leave banks with more capitals to lend. The counter-cyclical capital buffer is set at 0 per cent.
Though the banks have begun paying dividends in keeping with the safeguards set by the regulator, the market valuation continues to be low, reflecting concerns over future profitability, the FPC said.
The FPC also said it was reviewing rules pertaining to open-ended funds in its effort to further strengthen market stability. Open-ended funds, though they provide daily redemptions, usually invest in private stock or property, leading to a potential liquidity mismatch. After property funds had to block withdrawals because of Covid and Brexit, these funds have undergone greater screening.
Also read: BoE MPC March 2021: Rates Kept At 0.1%, Policy Stance Remains ‘Appropriate’
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It said that open-ended funds would be required to ensure that the time needed by investors to redeem their money must be the same as the fund’s ability to sell off its assets to meet redemptions. They also must classify their assets so that they can be sold easily, and prices also need to be adjusted in keeping with market conditions.
Also read: Why Bank of England Is Planning Tougher Capital Rules Than The EU
The regulator also said that to support infrastructure and ensure businesses continued to grow and innovate, different ways of investing in long-term businesses are required. The regulator said that it has set up an industry working group that would develop these new methods of investing.
About Brexit-related hurdles, the FCA officials said that the UK would be working together with the EU to create safer and more open financial systems.
At a separate event, BoE officials said that they are working with other global financial sector regulators to reform and strengthen global capital markets after last year’s shocks. They said that at the beginning of the pandemic, central banks all over had to help in stabilising markets so that they could not operate normally. Such risks can happen again anytime, the officials said.
