BOE to Maintain Key Bank Buffer at Zero on Challenging Outlook

  • Central bank says commercial real-estate risks crystallizing
  • BOE vows ‘robust prudential standards’ for financial system

The Bank of England said it plans to hold a key bank capital buffer at zero until at least June 2017 as the outlook for U.K. financial stability remains “challenging.”
 
The BOE’s Financial Policy Committee said on Thursday that banks shouldn’t increase dividends as a result of the countercyclical capital buffer rate being held at zero percent for U.K. exposures. The central bank cut the rate from 0.5 percent in July, and said it will remain at that level “absent any material change in the outlook.”
 
Among the threats to financial stability, the BOE noted “heightened uncertainty” about the economy and the U.K.’s future relationship with the European Union. The risks of a “sharp adjustment” in the British commercial real-estate market are “crystallizing,” the central bank said.
 
Led by Governor Mark Carney, the FPC met this week after an active summer that saw it respond to the U.K.’s Brexit vote by cutting the countercyclical buffer and easing leverage restrictions.
 
The latter move, aimed at ensuring a smooth pass-through of the BOE’s new monetary stimulus announced in August, allows U.K. banks to exclude central bank reserves when calculating their total exposure to risk. It said at the time that the change would result in banks needing 11 billion pounds less capital to comply with the leverage constraint.

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