Banks: Finance

Treasury written question – answered on 26th March 2020.

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Photo of Lord Myners Lord Myners Crossbench

To ask Her Majesty's Government whether it is their policy to use counter cyclical capital adjustments for banks to enhance resilience in order to cope with economic downturns; and whether they mandate regular stress tests.

Photo of Lord Agnew of Oulton Lord Agnew of Oulton Minister of State (HM Treasury), Minister of State (Cabinet Office)

The Financial Policy Committee (FPC) of the Bank of England is prescribed the power to set the countercyclical capital buffer (CCyB) rate for the United Kingdom. The FPC has set out its approach to the use of the CCyB in a Policy Statement published in April 2016 on the Bank of England website. As part of a wider package of measures announced by the Bank of England’s policy committees in response to the economic shock of Covid-19, the FPC reduced the UK CCyB to 0% on 11 March. This will support up to £190 billion of bank lending to businesses.

The Bank of England undertakes an annual stress test of major UK banks to examine the potential impact of a hypothetical adverse scenario on the resilience of the banking system. The 2019 stress test showed the banking system to be resilient to a scenario encompassing deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct costs. On 20 March the Bank of England announced it would cancel the 2020 stress test to ensure lenders can focus on meeting the needs of UK households and businesses through the economic shock caused by Covid-19.

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