UK banks 'well able' to withstand Covid-19 crisis - FPC

UK banks are well positioned to withstand the severe disruption brought about by the coronavirus pandemic, the Bank of England’s Financial Policy Committee said on Tuesday, as it pledged to take further action to underpin financial stability if needed.

The committee, which is tasked with identifying risks to the country’s financial system and protecting it, said the “nature and global impact” of the pandemic was “unprecedented in recent history”. But it insisted it “stands ready” to protect the system as needed.

The comments were made during its most recent meetings on 9 and 19 March, minutes of which were released on Tuesday morning.

The FPC said it had already, along with other committees within the Bank, taken actions to “reduce pressure on banks to restrict the provision of financial services, including supply of credit and support for marketing functioning”.

Steps include the Monetary Policy Committee cutting the cost of borrowing, initially to 0.25% from 0.75%, and then to 0.1%, while the FPC has cut the countercyclical capital buffer rate to 0% of banks’ exposure to UK borrowers from immediate effect, enabling banks to continue lending to households and businesses.

But the FPC added: “Given the pace at which the situation is evolving, the FPC will continue to monitor closely the credit conditions faced by UK households and businesses, and the operation of the UK financial system, and stands ready to take any further action deemed appropriate to support UK financial stabilising”.

The FPC said the major UK banks were, however, “well able” to withstand severe disruption.

“Having built up the resilience of the UK financial system over recent years, the FPC judges that major UK banks are well able to withstand severe market and economic disruption. Major UK banks have Tier 1 capital levels of around 17.5% of risk-weighted assets, more than three times higher than before the global financial crisis.

“They hold £1trn of high-quality liquid assets, enabling them to meet their maturing obligations for many months.

“The FPC further judges that household vulnerability is considerably lower than before the financial crisis.”