Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Financial Policy Committee Post-Brexit Referendum Financial Stability Report
Financial Regulatory Developments Focus
  • UK Financial Policy Committee Post-Brexit Referendum Financial Stability Report
    The Bank of England published its latest Financial Stability report. In the Report, the Financial Policy Committee explains the key risks affecting the UK financial system, how it is addressing these risks and the developments since the Brexit referendum. The Report also includes a summary of the results of the Bank of England's 2016 bank stress test.

    The first part of the Report outlines in detail the Committee’s analysis of major risks posed to the stability of the UK economy and the action it is taking in light of such risks. The second part of the Report contains a summary of the Committee’s analysis of those risks and of the resilience of the financial system. The Committee comments that since the Referendum, financial stability in the UK has been maintained despite a challenging period of uncertainty around the domestic and global economic outlook. For example, there have been significant movements in asset prices, including a 12% fall in the sterling exchange rate index. The Committee also comments that the outlook for financial stability in the UK remains challenging as the economy has entered into a period of adjustment. Since July, vulnerabilities that stem from the global economic environment and financial markets have further increased, such as the expected expansionary fiscal policy that could follow the recent US election. The Committee comments that the UK banking system is capitalized to sustain the provision of financial services when faced with severe stresses. Since the global financial crisis, UK banks have built up capital resources with the aggregate common equity Tier 1 capital held by major UK banks now at 13.5% of risk-weighted assets (as at September 2016).  

    In 2017, the Committee will continue to assess the risks highlighted in the report and the implications of the UK’s withdrawal from the EU. There will be two stress tests in 2017, with the annual cyclical scenario and a biennial scenario. The Committee has also committed to review the UK’s leverage ratio framework. The Committee will review the progress of its 2013 medium-term priorities, such as the establishment of a medium-term capital framework, end the “too big to fail” approach to resolution and ensure the availability of diverse and resilient sources of market-based finance. 

    View the Report