Bank of England policymakers disagree on pace of capital rule tightening, eye EU vote

Published Tue, Apr 5, 2016 · 09:26 AM

[LONDON] Bank of England policymakers will look again at whether to tighten capital requirements for banks more rapidly after the result of Britain's vote on European Union membership is known in June.

A record of the BoE Financial Policy Committee's March 23 meeting showed that a minority of members initially wanted to move faster towards the target agreed in December of requiring banks to hold an extra capital buffer of 1 per cent of assets to deal with cyclical shocks.

But the majority of the FPC only supported raising this to 0.5 per cent by March 2017, a decision announced last week. The rest agreed to drop their call for it to rise to 0.75 per cent, with a promise to look again in three months' time. "The FPC would review again the appropriate setting of the CCyB (buffer) at its next meeting in June, when it would have more information on the impact of tax changes on the buy-to-let market and the results of the EU referendum would be known," the BoE said.

The BoE has called Britain's referendum the biggest domestic threat to financial stability in the near term, and reiterated this in the record of their meeting published on Tuesday.

This new buffer sits on top of the minimum and is built up in good times to stop credit supply becoming too frothy, and tapped when the economy weakens and some loans turn sour.

The initial impact of the buffer on banks is likely to be limited. For larger banks the bulk of the increase will be cancelled out by a cut in another capital requirement, and many smaller banks' capital also already exceeds the required level.

The record also said there was a "range of views" among policymakers on the right balance to strike in regulation between ensuring that banks were resilient, and enabling them to have sufficient liquidity to trade bonds.


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