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Bank of England tells banks to raise more capital as consumer credit fears grow - business live Bank of England tells banks to raise more capital as consumer credit fears grow - business live
(35 minutes later)
11.55am BST
11:55
Q: Isn’t the boom in consumer credit due to you keeping interest rates so low?
Carney insists he’s not to blame, and points to the broader context of a UK economy that has grown solidly over the last 12 months (despite slowing in the first quarter of 2017).
Here’s a chart showing how consumer debt has grown:
Consumer credit growing much faster than household incomes @bankofengland #Carney #FinancialStabilityReport pic.twitter.com/9wg6T9ueNS
11.52am BST
11:52
Carney says the boom in car loans is a major factor behind the pick-up in consumer debt recently, but he remains “sanguine” about the banking sector’s overall exposure to it.
Carney: much of UK pick up in debt related to car loans
11.49am BST
11:49
BoE: Now's the time to check consumer credit
Q: Your charts show that consumer finance has been growing faster than household income since 2014, so shouldn’t you have issued today’s warning sooner?
Deputy governor Sir John Cunliffe says consumer borrowing actually picked up in 2013, but overall household lending actually grew slower than the UK economy.
Consumer borrowing is £200bn, compared to £1.4 trillion in mortgage lending, he explains - so the BoE has to decide when it’s a serious worry.
We’ve been watching consumer credit for a while, and now is the time to look at whether underwriting standards are starting to slip, and bring forwards our stress test (by three months, to September)
11.45am BST
11:45
Q: Are banks misbehaving and gaming the system, and is there a cultural problem?
They’re not gaming the system, but they’re not learning the lessons of the past, Carney says.
Updated
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11.44am BST
11:44
Q: Which consumer borrowing are you most worried about?
Carney cites the sharp build up in car financing – both in volume, and the move towards ‘personal contract purchasing’ deals (where buyers pay monthly repayments, and then face a large balloon payment to actually own their car)
Q: How confident are you that banks can raise the extra capital you are demanding?
They all have this capital on their books at present, Carney replies. It’s a question of reallocating capital from other areas (and perhaps choosing to raise more capital)
The extra capital buffer will mean UK banks must meet a 4% leverage ratio, Carney explains, but the current leverage ratio is actually 5.25%.
In other words, Banks shouldn’t face a massive challenge meeting the BoE’s demands.
Carney: at most including extra capital buffer demanded takes demands on UK banks to 4% leverage ratio. Less than current. (ie did nothing!)
Updated
at 11.54am BST
11.36am BST
11:36
Q: Has the general election changed your view of how the Brexit talks will evolve, and raised the risks from political instability?
The short answer is no, governor Carney replies.
Our job is to work out what might go wrong and prepare for it, rather than assessing quite how likely various scenarios are. So June’s general election hasn’t changed the Bank’s contingency planning for Brexit.
11.35am BST
11:35
Q: How worried are you about the British banking sector’s exposure to China?
Risks from China are at the top end of global risks, Carney replies.
That’s due to the build-up of debt, structural issues in the financial system, and the challenge of growing the economy while also maintaining stability.
11.33am BST
11:33
Q: What role are interest rates playing in exaggerating or reining in financial stability risks?
Monetary policy is the ‘last line of defence’, says Carney, and we don’t need monetary policy to do our job of ensuring financial stability, Carney continues.
If the Financial Policy Committee does its job properly, then the MPC can focus on its job of getting inflation back to target.
Q: And what would you say to those who think that being responsible for financial stability is distracting you from the job of setting interest rates and controlling inflation?
Carney (who chairs both the FPC and the Monetary Policy Committee which sets borrowing costs) denies that he’s got too much on his plate.
It takes as long to decide to raise rates as to cut then as to leave them on hold, he replies. I’ve been doing this job for many years at two central banks (the BoE and the Bank of Canada).
11.26am BST
11:26
First 3 questions to Carney all trying to get him to say consumers should borrow less.
And he’s not biting....
11.25am BST
11:25
Q: You’re telling banks that times are changing, and they should set aside more capital, but shouldn’t consumers also recognise that times are changing and rein in our borrowings?
I’m not going to give individual financial advice, says Mark Carney (you’re on your own, folks, sorry).
He then explains that the Bank is trying to strengthen the resilience of the core of the system, in case a crisis strike.
The message for the public is that if things become bumpy, in the Brexit transition or because of problems in the global economy, then the financial system will be there for them, says the governor, adding:
Individuals must take the judgement whether it’s the right time to buy a property, or invest in a business, and we’re trying to ensure that the financial system is there to help them with that.
11.20am BST11.20am BST
11:2011:20
Q: You seem to be blaming lenders, rather than consumers, for the rise in consumer credit - but shouldn’t people be more cautious about how much debt they take on?Q: You seem to be blaming lenders, rather than consumers, for the rise in consumer credit - but shouldn’t people be more cautious about how much debt they take on?
Carney says that UK households have deleveraged a lot since the financial crisis, and only releveraged recently.Carney says that UK households have deleveraged a lot since the financial crisis, and only releveraged recently.
He wouldn’t say that households as a whole are taking elevated risks.He wouldn’t say that households as a whole are taking elevated risks.
The first line of defence is that lenders themselves are responsible; the second line of defence is banks set aside enough capital incase of a downturn.The first line of defence is that lenders themselves are responsible; the second line of defence is banks set aside enough capital incase of a downturn.
11.15am BST11.15am BST
11:1511:15
Carney states the obviousCarney states the obvious
Q: How concerned are you that UK consumers are borrowing too much, and will find themselves in difficulties when interest rates rise?Q: How concerned are you that UK consumers are borrowing too much, and will find themselves in difficulties when interest rates rise?
Mark Carney replies that the BoE’s message, in good times or bad ones, is that anyone who takes out a loan should consider that they could face adverse conditions in the future, such as weaker growth and higher interest rates.Mark Carney replies that the BoE’s message, in good times or bad ones, is that anyone who takes out a loan should consider that they could face adverse conditions in the future, such as weaker growth and higher interest rates.
This “stating the obvious, which is often what you get from a central banker”, is particularly appropriate today, the governor adds smilingly.This “stating the obvious, which is often what you get from a central banker”, is particularly appropriate today, the governor adds smilingly.
UpdatedUpdated
at 11.15am BSTat 11.15am BST
11.12am BST11.12am BST
11:1211:12
On cybercrime, Carney says the Bank is setting out the framework that will be needed to protect the UK financial system from computer attacks.On cybercrime, Carney says the Bank is setting out the framework that will be needed to protect the UK financial system from computer attacks.
11.10am BST11.10am BST
11:1011:10
Carney: We're preparing Brexit scenariosCarney: We're preparing Brexit scenarios
On Brexit, Carney says the Bank is making contingency plans for all possible outcomes, and concentrating on those would have the greatest impact on the economy.On Brexit, Carney says the Bank is making contingency plans for all possible outcomes, and concentrating on those would have the greatest impact on the economy.
That includes the possibility that Britain leaves the European Union without a deal (this is the ‘cliff-edge Brexit’ that many firms fear).That includes the possibility that Britain leaves the European Union without a deal (this is the ‘cliff-edge Brexit’ that many firms fear).
Mark Carney says that Bank of England is continuing to monitor Brexit and ensure that banks have the right contingency plans in place.Mark Carney says that Bank of England is continuing to monitor Brexit and ensure that banks have the right contingency plans in place.
Mark Carney says @bankofengland is contingency planning for "no deal" at end of #Brexit - not saying that will happen, just one of the risksMark Carney says @bankofengland is contingency planning for "no deal" at end of #Brexit - not saying that will happen, just one of the risks
11.07am BST11.07am BST
11:0711:07
Carney says that forcing banks to hold more capital (by raising the counter-cyclical buffer to 0.5% today, and probably to 1% in November) will more protection to losses.Carney says that forcing banks to hold more capital (by raising the counter-cyclical buffer to 0.5% today, and probably to 1% in November) will more protection to losses.
BoE Carney on the wires#gbpusd pic.twitter.com/5QjBDR95RYBoE Carney on the wires#gbpusd pic.twitter.com/5QjBDR95RY
11.05am BST
11:05
Carney: Consumer credit growth and Brexit are key risks
Mark Carney begins his press conference by saying that financial stability has been strengthened since the 2008 crisis.
But the job of tackling financial dangers is “never done, and risks are evolving.”
The Financial Policy Committee thinks that the overall risks from the domestic environment are at a “standard level”, with most indicators neither “particularly elevated nor subdued”.
But there are some risks that require particular vigilance, he continues
One is consumer credit -- growth has “far outpaced” household income in the last year, including credit cards and loans to buy new homes. And with the market competitive, lenders are vulnerable to a downturn.
The second worry is Brexit -- the range of possible outcomes as Britian leaves the EU, and the paths to them.
Updated
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11.02am BST
11:02
Watch the BoE press conference here.
Mark Carney is facing financial reporters at the Bank of England now, to explain the thinking behind today’s financial stability report.
You can watch it live here:
10.59am BST
10:59
Breaking: Google fined record €2.42bn by EU
Google has been handed a record €2.42bn fine by Brussels over alleged abuse of its market dominance.
It was a much bigger than expected fine, with most predicting a penalty in the region of €1bn.
EU anti-trust officials have accused the search engine giant of illegally favouring its shopping service.
It is the biggest fine for a single company in an EU anti-trust case, and follows a seven-year investigation.
European Commissioner Margrethe Vestager, in charge of competition policy, said:
Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors.
What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.
More soon...
Here's the European Commission statement about its Google fine https://t.co/95R0H29aoT
And here is the background:
Updated
at 11.00am BST
10.58am BST
10:58
Financial stability report: instant reaction
City experts are trawling through the Bank of England’s financial stability report.
Duncan Weldon of Resolution Group has spotted a chart showing how consumer credit losses rise when unemployment increases.
Good chart in the Bank of England Financial Stability Report - consumer credit losses & unemployment. https://t.co/8eKaE6UiK3 pic.twitter.com/EDixNcI59f
No wonder the Bank is forcing lenders to stash more capital in their vaults now, in case an economic downturn forces more consumers to default on their loans.
Alistair McQueen of Aviva points to another chart, showing how a drop in house prices can ripple through the system, triggering ‘fire sales’ and further losses.
.@bankofengland voices concerns about the housing market. 2+ MILLION first-time-buyers since interest rates were last increased in July 2007 pic.twitter.com/LTFy2tdMzG
Steve Hawkes of The Sun has a pithy summary:
Here we go again - Bank of England orders banks to set aside £11 billion to cover potential explosion (my word) in bad debts
10.48am BST
10:48
The BoE’s financial stability report is online here.
Here’s an infographic form the Bank, setting the scene:
10.47am BST
10:47
Bank of England report: The Key Points
The Bank of England is also boosting its work on cybercrime and continuing its work on Brexit’s impact.
That’s on top of ordering UK banks to set aside more capital, and rushing forwards its consumer stress tests.
Here are the five key points from the financial stability report. The Bank of England is....
• Increasing the UK countercyclical capital buffer rate to 0.5%, from 0%. Absent a material change in the outlook, and consistent with its stated policy for a standard risk environment and of moving gradually, the FPC expects to increase the rate to 1% at its November meeting.
• Bringing forward the assessment of stressed losses on consumer credit lending in the Bank’s 2017 annual stress test. This will inform the FPC’s assessment at its next meeting of any additional resilience required in aggregate against this lending. The FPC further supports the intentions of the Prudential Regulation Authority and Financial Conduct Authority to publish, in July, their expectations of lenders in the consumer credit market.
• Clarifying its existing insurance measures in the mortgage market, designed to prevent excessive growth in the number of highly indebted households. This will promote consistency across lenders in their application of tests to assess whether new mortgage borrowers can afford repayments.
• Consistent with its previous commitment, restoring the level of resilience delivered by its leverage ratio standard to the level it delivered in July 2016 before the FPC excluded central bank reserves from the leverage ratio exposure measure. The FPC intends to set the minimum leverage requirement at 3.25% of non-reserve exposures, subject to consultation.
• Overseeing contingency planning to mitigate risks to financial stability as the United Kingdom withdraws from the European Union.
• Building on the programme of cyber resilience testing it instigated in 2013, by setting out the essential elements of the regulatory framework for maintaining cyber resilience. It will now monitor that each element is being fulfilled by the relevant UK authorities.
Updated
at 10.54am BST
10.42am BST
10:42
Another important point: the Bank of England is also bringing forwards its planned stress test on consumer credit lending to September, from November.
That test will assess whether UK banks can handle a jump in consumer credit losses.
10.38am BST
10:38
Today’s change means that UK banks will have to set aside more than £11bn of extra capital to cover potential losses if the economy weakens:
From the BoE, my colleague Jill Treanor explains:
The Bank of England is to force banks to hold more capital in the face of rapid growth in lending on credit cards, car finance and personal loans.
The intervention by Threadneedle Street, which could amount to banks needing £11.4bn of extra capital in the next 18 months, is one of a number of measures intended to protect the financial system from the growth in consumer finance.
10.34am BST
10:34
BANK OF ENGLAND RELEASES FINANCIAL STABILITY REPORT
Here we go! The Bank of England has told Britain’s banks to start setting aside more capital to protect themselves from a financial downturn.
That’s one of the key lines from the Financial Stability Report.
As predicted, the BoE is raising the counter-cyclical capital buffer (CCyB), so that banks must set aside 0.5% of their assets as capital in case of a rainy day.
That means it is reversing one of measures taken after the Brexit vote, a year ago.
Interestingly, the BoE says it expecs to raise CCyB again, in November, to 1%.
More to follow....
10.25am BST
10:25
Tension is building in the City as traders wait for the Bank of England’s financial stability report to hit the wires, in just five minutes.
Upcoming event in 5 min [09:30 GMT] - Bank of England Financial Stability Report () #forex #fx #finance