Bank of England Financial Policy Committee Publishes Policy Summary
10/08/2020The Bank of England's Financial Policy Committee has published its latest Policy Summary and the minutes of its meeting held on September 30, 2020. The FPC notes a range of near-term risks that could impact the U.K. economy, including the evolution of the COVID-19 pandemic, post-Brexit trading arrangements between the U.K. and EU and various other geopolitical risks. The Policy Summary notes the FPC's intended policy in the following three key areas:
- Outlook for financial stability: the FPC finds that banks' capital buffers have been sufficiently built up in the years since the financial crisis to enable banks to continue supporting the economy through COVID-19 and Brexit; the FPC does acknowledge there may be some risks of market disruption, however, particularly in the wake of Brexit;
- Global efforts to reduce non-bank financial intermediation issues: NBFIs (e.g. investment funds, money market funds and hedge funds) were forced to sell assets during an abrupt "dash for cash" in March 2020 at the outset of the COVID-19 pandemic; the FPC is assessing the mismatch between the liquidity of assets held in open-ended funds and those funds' redemption terms and the demands on NBFIs for liquidity in times of stress; and
- Domestic review of funds and productive finance: the FPC is investigating distortions that disincentivize investors from investing in funds with longer redemption notice periods or closed-end funds; greater investment in such funds would improve the supply of productive finance to areas such as real estate and unlisted equity.
At its meeting, the FPC discussed the above areas, with particular reference to the impact of COVID-19 on the economy. It also confirmed that it would maintain the U.K. countercyclical capital buffer rate at 0%, which it expected would last until at least March 2021.
The FPC also published a checklist of actions to avoid the risk of disruption to the financial services sector at the end of the Brexit transition period. The checklist shows the risks to the U.K. and the EU, which can be ranked low, medium or high. No risks are currently identified as high, while medium risks are identified for both the U.K. and the EU in the over-the-counter derivatives markets (arising from difficulties in the ability of derivatives users to manage risk after Brexit) and personal data (arising from the potential refusal of the EU to deem the U.K.'s data regime adequate after Brexit).
The FPC's next meeting will be on November 30, 2020 and the record of that meeting will be published on December 10, 2020.
View the FPC's Policy Summary and checklist of risks following Brexit.
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