The FT has just reported:
The Bank of England has put lenders on notice that they will have to build a special buffer worth £11.4bn over the next 18 months as it tries to make them more resilient to risks such as a burgeoning consumer-credit sector.
The BoE told lenders that it would raise banks' so-called counter-cyclical capital buffer from zero to 0.5 per cent of UK risk-weighted assets immediately. It also forecast a further 0.5 percentage point rise to 1 per cent by the end of the year as the central bank said the general outlook for the UK's financial stability is moving to a more normal outlook.
Of course the stated concerns may be the reason for this increased caoutal requirement. We know there is real risk in the UK economy.
But I also think that this is about contagion risk arising from EU bank failure. I think there is too much coincidence for that not to be the case.
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The BoE have arrived late to this particular party. Perhaps they had too much caoutal for dinner.
Caoudal ?
I read this as a typo of “capital”
Mondays’New York Times had a good artilce on the lessons learned from the Banco Popular saga (sorry only have a hard copy). One take-away was “don’t trust bank stress tests” (the bank had a 10% ratio for Tier 1 vs risk weighted assets – up to the point of collapse). Very interesting bit on “Additional Tier notes”. Article ended noting that bank bonds were avoided by various investment orgs – although there was still plenty of appetite for the Additional Tier Notes (which became worth zero over-night in the case of the Banco Popular) – leaving one wondering – who are the mugs?
Layman here. So, are we to understand that the nominal reason for increasing the buffer is the consumer debt load and the risk of defaults due to a possible downturn/inflation/etc.? If so, do you think this is just caution or foreboding?
I think that risk is high
I also think the risk of contagion is high
I think the risk within vehicle hire contracts may be enough to justify this
95% of car sales on finance.
What could possibly go wrong?
All assuming a high residual price – which falling confidence will not deliver
Nothing can go wrong at all
The risk from EU banks is exactly what Varoufakis was talking about in the youtube video I posted yesterday, re-posted here. He speaks also about what the EU partners are willing to do re Brexit negotiations to shore up their banks and positions as part of Europe’s hidden agenda.
https://www.youtube.com/watch?v=nGt82RFfg3U
The independence we need is not from a trading system and measures to promote peace and co-operation, but from the attempts of the feral financial sector to become dominant over elected politicians.
I don’t believe this independence will happen if the elected politicians are in thrall to the feral financial sector, and some cases take their coin. The financial sector want total domination to be able to shape the world to their will and design.