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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)
12.24pm BST
12:24
Final question:
Q: You say you expect to raise the counter-cyclical buffer to 1% in November, but could Brexit force a cut back from 0.5% to 0% (reversing today’s move)
Mark Carney says the BoE thinks the buffer should be around 1% in stable times. The BoE had started the process of raising the buffer last year, before the Brexit vote, which led it to be cut back to 0% to take worries about lending ‘off the table’.
So.... we could have decided to hike the buffer to 1% today, but it was more sensible to allow a ‘gradual build’ (to 0.5% today, and 1% in November)
On Brexit, we want the system to be as resilient as possible to prepare for any outcome in 640 days time, he concludes.
I think that means the BoE want the banking sector to be well capitalised, in case of any Brexit shock in March 2019, when Britain leaves the EU.
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at 12.31pm BST
12.17pm BST
12:17
Q: You say that West End asset prices are ‘unsustainable’; when might they return to reality, and what impact would that happen?
Carney reiterates his earlier point that Britain currently have “Very low risk-free rates, and high valuation levels”. So either those rates should rise, or asset prices should fall.
It would be foolish to put a timescale on it - prices can stay unsustainable for a long time, and then correct quickly, he warns.
12.15pm BST
12:15
Carney: We've had very productive discussions with US regulators
Q: The report talks about the need for ‘consistent implementation’ of international standards; are you particularly worried about the Trump administration?
Carney says it is important to have open global standards, and even more important that they are implemented, to avoid another financial crisis.
You also need supervisory co-operation between regulators...and we want to reinforce that where possible.
On the US, we have had “very productive discussions” with regulators about it.
Carney explains how many countries have some unique rules (such as America’s Volcker rule, or bank ring-fencing in the UK), which they can change without affecting other nations. But there needs to be more co-ordination when it comes to global standards, if there are areas of ‘inconsistency’ that need to be addressed.
[Explainer: Donald Trump has vowed to cut regulations in the financial sector, such as the Volcker rule which is meant to prevent banks taking dangerous trading risks.
Trump is also keen to repeal Dodd-Frank, which was brought in after the financial crisis. ]
12.02pm BST
12:02
Q: You point out that commercial real estate assets are overvalued, and could unwind if people try to sell them in a rush. That happened after the Brexit vote - has anything changed since?
[explainer: several property funds froze redemptions after the EU referendum, to stop investors cashing out, exposing the dangers of investing in ‘illiquid assets’ such as shopping centres]
Carney says there is a disconnect between the market expectations for future growth, and the value of commercial buildings.
So either those expectations will rise, or commercial asset values will fall.
Carney offering coded warning on the value of commercial real estate. Disconnect between growth expectations and asset values.
11.55am BST11.55am BST
11:5511:55
Q: Isn’t the boom in consumer credit due to you keeping interest rates so low?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).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:Here’s a chart showing how consumer debt has grown:
Consumer credit growing much faster than household incomes @bankofengland #Carney #FinancialStabilityReport pic.twitter.com/9wg6T9ueNSConsumer credit growing much faster than household incomes @bankofengland #Carney #FinancialStabilityReport pic.twitter.com/9wg6T9ueNS
11.52am BST11.52am BST
11:5211:52
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 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 loansCarney: much of UK pick up in debt related to car loans
11.49am BST11.49am BST
11:4911:49
BoE: Now's the time to check consumer creditBoE: 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?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.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.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)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 BST11.45am BST
11:4511:45
Q: Are banks misbehaving and gaming the system, and is there a cultural problem?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.They’re not gaming the system, but they’re not learning the lessons of the past, Carney says.
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at 11.54am BSTat 11.54am BST
11.44am BST11.44am BST
11:4411:44
Q: Which consumer borrowing are you most worried about?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)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?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)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%.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.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!)Carney: at most including extra capital buffer demanded takes demands on UK banks to 4% leverage ratio. Less than current. (ie did nothing!)
UpdatedUpdated
at 11.54am BSTat 11.54am BST
11.36am BST11.36am BST
11:3611:36
Q: Has the general election changed your view of how the Brexit talks will evolve, and raised the risks from political instability?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.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.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 BST11.35am BST
11:3511:35
Q: How worried are you about the British banking sector’s exposure to China?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.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.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 BST11.33am BST
11:3311:33
Q: What role are interest rates playing in exaggerating or reining in financial stability risks?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.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.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?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.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).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 BST11.26am BST
11:2611:26
First 3 questions to Carney all trying to get him to say consumers should borrow less.First 3 questions to Carney all trying to get him to say consumers should borrow less.
And he’s not biting....And he’s not biting....
11.25am BST11.25am BST
11:2511:25
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?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).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.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: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.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