Bank of England re-examines bank capital rules on Ukraine invasion

LONDON (Reuters) – The Bank of England said on Thursday it may not go ahead with plans announced in December to raise capital requirements for banks next quarter given Russia’s invasion of Ukraine.

The Bank of England said the capital and liquidity position of major UK financial institutions remained strong, but economic uncertainty means it may not be appropriate to increase the cyclical capital requirements associated with the economic recovery.

“Global financial markets, especially commodity markets, have been volatile and uncertainty over the economic outlook has increased significantly,” the bank said in a quarterly report from the Financial Policy Committee.

The Bank of England (BoE) said margin calls on commodity derivatives rose to an all-time high but act as a “critical protection” for financial stability.

Margin calls or “margin calls” are notifications sent by the broker to the leveraged investor with the aim of placing more funds in his account, after the depreciation of the asset prevents meeting the minimum deposit guarantee imposed by the aforementioned. Intermediary in situations of danger.

The bank said in December that it intended to increase banks’ counter-cyclical capital buffer (CCyB) — the main vehicle for facilitating loans throughout the credit cycle — from 1% to 2% in the second quarter of 2022, with one full effect. After one year.

Although local risks have not changed since then, so has the global environment, the bank said.

“Given this uncertainty, the committee will continue to monitor the situation closely and is ready to change the UK’s CCyB rate in any direction,” the committee said.

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It added that UK banks’ direct exposure to Russia would amount to 1% of their core capital at the end of 2021.

The CPF added that CCyB’s rate decision will be easier once the BdE Monetary Policy Committee publishes its new economic outlook in May.

The Bank of England also said it will postpone the annual financial health stress test for banks, which was suspended during the COVID-19 pandemic, until later in 2022.

Monetary policy makers saw little risk to financial stability from the sharp rise in home prices, and they expected borrowers to continue to be able to pay their mortgages despite the sharp rise in the cost of living.

However, the poorest households are likely to experience the most difficulties.

(Information by Hugh Jones and David Milliken, translated by Jose Muñoz for the Gdansk newsroom)

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