On November 30, 2016, 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.
The European Commission's Regulation on indices used as financial benchmarks in financial instruments and financial contracts forms part of the EU's response to a series of high profile investigations in recent years...
The Prudential Regulation Authority's (PRA) consultation paper on "Refining the PRA's Pillar 2A capital framework" (CP3/17) introduces revisions to the assessment of capital requirements for credit risk.
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