Featured Product

    UK Agencies Examine Financial Stability Outlook

    July 13, 2021

    The Bank of England (BoE) published the financial stability report, which sets out views of the Financial Policy Committee (FPC) on stability of the financial system and details interim results of the 2021 solvency stress tests on banks. The results indicate that the banking sector remains well-capitalized and resilient. The full and final results of the 2021 solvency stress test, including bank-specific outcomes, will be published in the fourth quarter of 2021. Along with the financial stability report, BoE published a summary and record of the July 2021 meeting of FPC, which aims to identify risks to financial stability and agree on policy actions aimed at safeguarding the resilience of the UK financial system. The Prudential Regulation Authority (PRA) also announced that the extraordinary guardrails within which it asked bank boards to determine the appropriate level of distributions in relation to the full-year 2020 results are no longer necessary and have been removed with immediate effect.

    FPC supports the decision that extraordinary guardrails on shareholder distributions are no longer necessary, consistent with the return to the standard approach of PRA to capital-setting and shareholder distributions through 2021. Furthermore, FPC expects to maintain the UK countercyclical capital buffer rate at 0% until at least December 2021. Due to the usual twelve-month implementation lag, any subsequent increase would therefore not be expected to take effect until the end of 2022 at the earliest. At the meeting, FPC identified key focus areas to reduce the likelihood and impact of disruptions to market‐based finance; these focus areas include reducing the demand from the non‐bank financial system for liquidity in stress, ensuring the resilience of the supply of liquidity in stress, and potential additional central bank liquidity backstops for market functioning. FPC also supports the international work to assess whether there was more procyclicality in margin calls than was warranted, whether market participants were prepared for margin calls in a stress, and any consequent need for policy in light of this, without compromising the benefits of the post‐global financial crisis margining reforms. For central banks to deal effectively with financial instability caused by market dysfunction, FPC supports examining whether any new tools are needed; the tools would need to be both effective and minimize any incentives for excessive risk‐taking in the future through appropriate pricing and accompanying regulatory requirements. 

    In another development, BoE and the Financial Conduct Authority (FCA) concluded their joint review into risks in open‐ended funds and have developed a possible framework for liquidity classification and swing pricing. FPC recognizes that further work is needed to consider how these principles could be applied, and a number of operational challenges will need to be addressed before any final policy is designed and implemented. FPC emphasizes that market participants should use the most robust alternative benchmarks available in transitioning away from use of LIBOR to minimize future risks to financial stability. FPC believes that the recently created credit-sensitive rates—such as those being used in some USD markets—are not robust or suitable for widespread use as a benchmark and considers these rates to have the potential to reintroduce many of the financial stability risks associated with LIBOR. With respect to addressing risks associated wit cloud services, FPC is of the view that additional policy measures to mitigate financial stability risks in this area are needed and welcomes the engagement among BoE, FCA, and Her Majesty's Treasury on how to tackle these risks. FPC has already highlighted that the market for cloud services is highly concentrated among a few cloud service providers, which could pose risks to financial stability. 


    Related Links

    Keywords: Europe, UK, Banking, Securities, COVID-19, Dividend Distribution, Stress Testing, CCyB, Regulatory Capital, Credit Risk, Liquidity Risk, LIBOR, Interest Rate Benchmarks, Cloud Service Providers, Cloud Computing, Financial Stability, Benchmark Reform, Basel, PRA, FPC, FCA

    Featured Experts
    Related Articles

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699