BoE sees financial system shock risk returning to pre-pandemic level

Bank of England (BoE) President Andrew Bailey said vulnerabilities that could trigger a shock to the UK’s financial system have returned to a standard level, similar to the period before the covid-19 pandemic .

During a press conference following the publication of the BoE’s December Financial Stability Report, the official said that there is little evidence of deterioration in home lending standards, and the vulnerabilities of British corporate debt increased only modestly during the pandemic.

Global debt exposure and leverage, however, remain relevant for the UK financial system, according to Bailey.

‘Robust’

The main banks in the UK have robust enough liquidity and capital to continue supporting the recovery of households and companies from the covid-19 crisis or even against more “severe” scenarios, according to the Financial Stability Report released on Monday. market.

As for the health of markets, the BoE reported that financial risk taking remained high compared to historical levels, even disregarding recent volatility. “The low compensation for risk in some markets may be evidence of investors’ yield seeking behavior, which may reflect the continued low interest rate environment. This creates the chance of a sharp correction in asset prices”, emphasizes the Bank.

According to the organization, there are uncertainties surrounding the economic recovery due to short-term pressures on prices and supply chains. The BoE also highlights potential impacts of the covid-19 pandemic on activity if new coronavirus variants prove more resistant to currently available vaccines.

With the risks to the financial system returning to levels similar to the period before the health crisis, the entity decided to increase its countercyclical capital buffer from 0% to 1%, to be implemented in December 2022. If the economy continues to recover, the The instrument should undergo a new increase in the second quarter of next year, to 2%, anticipated the BOE.

cryptoactives

In the report, the British BC also stated that the Financial Stability Committee classified systemic risks by “cryptoactive” as limited, with a chance of growing in the future.

At a press conference on Monday, BoE chairman Andrew Bailey warned of the volatility of these assets and said his investors are at risk of losing their entire investment.