Huw Jones and David Milliken

LONDON (Reuters – Thursday, March 24, 2019) – Given Russia’s invasion of Ukraine, the Bank of England stated that they might no longer follow plans it announced in December for raising banks’ capital requirements in quarter three.

BoE stated that major British lenders were in a strong capital and liquidity situation, however economic uncertainty made it unlikely to appropriate to raise capital requirements cyclical to support economic recovery.

In a Quarterly Report from the Financial Policy Committee, the BoE stated that “global financial markets, especially for commodities have been volatile” and added that there is more uncertainty about the future.

The BoE stated that margin calls for commodity derivatives have risen to an unprecedented high but still served as a “critical safeguard” for financial stability.

According to the BoE, December saw it announcing that the BoE would increase banks’ anti-cyclical capital buffers. (CCyB) is the main tool used to manage lending. It will be raised to 2% in 2022 from 1%. Full effect will come one year later.

Although domestic risk had not increased since that time, global conditions had.

The FPC stated that “Given the uncertainty”, the Committee would continue to watch the situation and be ready to adjust the UK CCyB rates in any direction.

FPC stated that the direct exposures of UK bank to Russia amounts to 1% their core capital by the end 2021.

The FPC said that deciding the CCyB rates would become easier after the BoE’s Monetary Policy Committee published updated economic forecasts for May.

Also, the BoE stated that it will delay an annual stress testing of banks’ financial strength, which was suspended in response to the COVID-19 pandemic. This would be until 2022.

A sharp increase in property prices did not pose a risk to financial stability. Policymakers expected that borrowers will continue to be capable of repaying mortgages even though the price of living has increased.

However, poorer households are more likely to have greater difficulties.