Bank Of England Unveils First Easing Measures After Brexit

Tyler Durden's picture

The Bank of England lowered capital requirements for UK banks Tuesday in an effort to shore up the UK economy, saying that it "strongly expects" banks to support the economy with fresh loans in the wake of Brexit.

In its first official easing act, the Financial Policy Committee lowered the countercyclical-capital buffer rate for UK exposures to zero from .5% of risk-weighted assets in a move that it said would release £5.7bn from the buffer, in which it requires banks to accumulate capital in good times to draw down in bad, and raise the capacity for bank lending to households and businesses by as much as £150 billion.

"This action reinforces the FPC’s view that all elements of the substantial capital and liquidity buffers that have been built up by banks are to be drawn on, as necessary" the committee said in a statement.

As the FT adds, the BOE also reminded banks that capital and liquidity buffers put in place during the financial crisis are there to be run down in stressed conditions. In exchange, banks are on notice from the BoE’s Prudential Regulation Authority that they are not to increase dividends and other distributions. The moves came as the pound hit a new post-referendum low amid rising concerns over the UK property market following a decision by Standard Life to halt redemptions on one of its flagship sector funds.  Sterling fell 1.8 per cent to $1.3113, passing the $1.3118 nadir it reached on June 27.

In its Financial Stability Report published on Tuesday, the BoE also revealed that insurers had been allowed some flexibility by the watchdog around new EU laws that took effect at the beginning of the year in an attempt to stop a fire sale of risky corporate bonds as insurers try to meet their liabilities in a low-interest rate environment.

“There will be a period of uncertainty and adjustment following the result of the referendum. It will take time for the UK to establish new relationships with the European Union and the rest of the world. Some market and economic volatility is to be expected as this process unfolds,” the BoE’s financial stability report read.

Mark Carney, Bank governor, conceded at a press conference that the efforts of the central bank will not “fully and immediately” be able to offset market and economic volatility following the UK’s vote to leave the EU. He added that the FTSE 250 index of largely domestically-focused stocks gave a better sense of investors’ expectations for the UK economy than the FTSE 100, and added that the economy is likely to slow even with a drop in sterling that may help exporters.

More from the WSJ:

The BOE’s decision marks one of the first instances of a major central bank deliberately lowering bank capital requirements to maintain growth in credit to offset an economic shock. Lower capital requirements allow banks to finance loans and other assets with more borrowing and less equity.

 

The bank’s move will be closely watched as a test case of the new “macroprudential” regulatory regime adopted in the U.K. and other advanced economies after the financial crisis. The BOE gained broad new powers over the financial system and an explicit goal of safeguarding financial stability. It has spent the past few years bolstering lenders’ financial strength.

 

Officials warned Tuesday that the stability of the U.K. financial system faces multiple threats in the wake of the Brexit vote. The BOE said it has already detected signs in stock markets and commercial real-estate markets that foreign investors are pulling money out of the U.K. A real-estate fund managed by Standard Life Investments on Monday suspended withdrawals following a spate of redemption requests.

 

The BOE said some overstretched households might struggle to service their debts if the economy lurches downward. And officials warned that the outlook for the global economy has darkened.

 

Still, officials stressed the financial system is stronger now than it was in 2008 and 2009, when British taxpayers had to bail out stricken lenders and credit dried up. They also flagged that banks have parked collateral with the BOE sufficient to access more than £250 billion of funding if they need it.

"The FPC has monitored these channels of risk closely. There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging" the report said, identifying five channels through which the referendum could increase risks to financial stability.

From the report:

The Committee had identified the following channels through which the referendum could increase risks to financial stability:

 

  • the financing of the United Kingdom’s large current account deficit, which relied on continuing material inflows of portfolio and foreign direct investment;
  • the UK commercial real estate (CRE) market, which had experienced particularly strong inflows of capital from overseas and where valuations in some segments of the market had become stretched;
  • the high level of UK household indebtedness, the vulnerability to higher unemployment and borrowing costs of the capacity of some households to service debts, and the potential for buy-to-let investors to behave procyclically, amplifying movements in the housing market;
  • subdued growth in the global economy, including the euro area, which could be exacerbated by a prolonged period of heightened uncertainty;
  • fragilities in financial market functioning, which could be tested during a period of elevated market activity and volatility.

The FPC stands ready to take any further actions deemed appropriate to support financial stability,” the panel said, which of course precisely what the market is ultimately looking - the assurance that if ever anything does happen central banks will jump in at a moments notice.

And since this was the Mark Carney's first official easing act, UK stocks took it in stride and have not only pared all overnight losses but were up 0.6%, trading at session highs, while U.K. bank shares cut losses after Bank of England Governor Mark Carney cut their capital requirement to zero to raise capacity for lending. The FTSE 350 Banks index had lost as much as 1.2 percent before and was trading fractionally in the green as a result of this latest central bank intervention.

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ebworthen's picture

Since when is debt a "buffer"?

Multi's picture

"To 0 from 0.5"  Wow, what a game changer. Granted there is not much more margin but do Central Bank realize how ridiculous this measures look?

You go Bank of England, this  surely will have an impact.

Thoresen's picture

Come back Mervyn King!

GreatUncle's picture

Lol yeah, at least he appeared sensible.

This rolling out QE before it gets bad is to make the shit happen.

asteroids's picture

Now, if the UK still had its gold reserves.....

Huh Reeeally's picture

OK, so now they're raiding the cookie jar, there's nothing left after this except.... helicopter money, yay!

Kirk2NCC1701's picture

Zeros, Durden, do you ever listen to what you're saying?

You (rightfully) bitch & moan about Fiat money and Interest Rates on it, but when these 'evil' rates go to zero, you still complain. 

Let's be intellectually honest, shall we? The ONLY reason you complain, is that your Savings accounts or CDs are not paying you interest, and not funding your rent-seeking lifestyle.

Does Bullion pay you dividends/interest? NO! So why should Cash?  ZIRP is evil and NIRP is 'eviler'? How's that different from the bullion sitting in your or my home-safe? It's not: if it's at home, PM is ZIRP. If stored in a SD box at a bank, or some fancy gold storage overseas, it's NIRP.

If you want rent or dividends, you'd best do what mankind has done for thousands of years: you buy productive property or businesses.

The bald-faced hypocrisy is sometimes staggering on ZH.

maneco's picture

You are right! The £5.7 billion extra in capital from this move will potentially create £150 billion in new credit or loans! 26 times leverage. These guys are mad.

Arnold's picture

"... Lending to households and businesses"

 

Was my wake up slap in the head this morning.

new game's picture

lol, these fucking idiots are dulussional. let me get this straight, my wages are stagnent, prospects are dim in euro land, oh and isn't that why the exit? but, yea, moar easing and lower rates and i'm gonna run out and spend, spend and borrow moar fucking fraudulent fiat in a dismal economy controlled by you fucks, sure, yea man, where do i sign?

TradingIsLifeBrah's picture

Do they want a bank run? Because this is how you get a bank run.

 

So banks managed to avoid the worst of this bubble and now shit is starting to fall apart. So what do the politicans do?  They try to force the banks to prop up the fucked up market. End game is all the banks will be left holding the bag when no one wants to roll over these unpayable bubble loans.  As soon as the public wakes up to what is going on everyone will make a run for their money because its already been shown that "bail-ins" are the future of bail-outs.  "He who panics first, panics best"

wildbad's picture

really!?!

sounds like centrally managed  capital controls...

 

nad then they "suggest" or "hope" that this largesse will be turned into local and middle sized loans.  good luck with that!

 

We have seen here in europe, and anywhere else, where central controls are simply suggested that they will be completely and happily ignored in lieu of higher returns and minimized losses especially on no-cost ca$h.

 

this is the pre-echo of the voice of D00M!

 

Squid Viscous's picture

he looks genuinely concerned, is he staring at the daily chart of Gold and Silver prices?

Stroke's picture

LMFAO.....Banks are still not going  to lend  beyond what they are doing now

 

Time for helicopter money.....I'm buying silver with mine

BadKiTTy's picture

Yep. This douch has been watching debt going up for like ... forever, and NOW it is a problem.  

Every problem they have is going to badged up as a Brexit problem.  

gdogus erectus's picture

Thank god they stepped in. I can go back to sleep now that I know the CBs have my back.

css1971's picture

I think we're getting to the "Just fucking throw more money at it" stage where they don't really care about any consequences. It'll become increasingly sloppy.

Ok. Selling my pounds. Again.

Bill of Rights's picture

Indeed the masses are to dumb to realize whats happening so sure toss the kitchen sink in as well they don't care or notice.

trollster's picture

This is like going into a hurricane completely butt-naked.

Arnold's picture

The act sharpens the mind.

The image, not so much.

harrybrown's picture

im clad with bullion.... let the hurricane ROARRRRRRRR

Atomizer's picture

Transformation into Basel V. Bank of International Settlements is slow this morning. Publish anything of value later. 

Ready or Not, Here Comes Basel IV | American Banker

wmbz's picture

 "Still, officials stressed the financial system is stronger now than it was in 2008 and 2009, when British taxpayers had to bail out stricken lenders and credit dried up".

"British taxpayers had to bail out stricken lenders"

~ So, did anyone ever ask the taxpayers about this? Because, over here in the USSA "they" just ram it down the serfs throat! Paulson style!

Just blow the whole damn thing up already!

GreatUncle's picture

Last time was £375 billion, only £250 billion this time so that is an improvement right? LOLOLOL ...

Byte Me's picture

"Cry 'Havoc!', and let slip the dogs of war".

Bopper09's picture

Next up, central banxit

Atomizer's picture

Sending my Love with a middle finger to Brussels...

The Cult - Hollow Man

 

TheAntiProgressive's picture

Great a new term....  Who need Quantitative Easing when you can manipulate a "countercyclical-capital buffer rate".

Stu Elsample's picture

This matters not to the Muslim 'guests' who will eventually overtake England and run the show their way...as they already have in London.

Thanks, EU

new game's picture

bin ladden for prime minister!

Ghordius's picture

ehmm... perhaps you are mistaking the EU with the EEU ?

there, in it's leading country you might even find a federated state called Republic of Tatarstan, nearly all Muslims

meanwhile from the EU, most of the immigration into the UK was from Poland. Mostly damn Popist Catholics. like me

whatever, on behalf of the EU:  you are welcome

here, from the RT News website: "Muslims around the world are celebrating one of their most important holidays, Eid al-Fitr, which marks the end of the holy month of Ramadan. In Russia, Muslims also flock to morning prayers, including the thousands expected to descend on Moscow Cathedral Mosque"

overmedicatedundersexed's picture

Ghordius a popist?? well...from an ex alter boy..to paraphrase" the church of rome is a racket" tip of hat to gen s butler.

if anyone asks so are all the others from muslem to hindi to snake holding bible thumpers..every one has their hand out. pay me: clinton's saw that fact and simplified the concept to  their own " clinton foundation fund" doing good around the world..but keeping the prime directive; Pay me first.

TheReplacement's picture

So you are a catholoholic eh.  That explains it right there.  You have my sincerest condolences.

Question for you, do you know why Christianity and Catholicism are so oft mentioned side-by-each as if they are two seperate religions entirely?

Answer, because they are.

overmedicatedundersexed's picture

london can sell more gold...oh wait

Stu Elsample's picture

That pic looks like a James Bond scene..

Mike in GA's picture

LOL...it does, except Roger Moore would have that unflappable air of derring-do whereas Mr. Carney appears quite the derring-don't.

RawPawg's picture

a baby steps collapses

hurry it up,already

devo's picture

so they left the eu to print more? cool

GreatUncle's picture

Economy was already in the shit, Carney needed to CTRL-P BREXIT gave him the excuse.

Would look really shit if it was BREMAIN and CTRL-P.

CHoward's picture

It's all BULLSHIT!!

 

When exactly did Britain leave the EU?!?  OH, that's right - they haven't - it was ONLY a vote - nothing more.

 

Now everyone wants to use BREXIT has the cause for the world's problems and the UK hasn't even invoked Article 50 yet.  It's all pure bullshit.

GreatUncle's picture

They won't leave neither all the MSM is trying to kolly up staying suggest they know that is possible.

As for the pound falling, yay we become cheaper and you couldn't print to make that happen.

As for a low pound not being good for UK tourists going overseas ... who gives a fuck means the money don't get spent overseas.

brushhog's picture

A smaller, more adaptable, more localized government full of people that have just stood up for self determination and home rule? After the dust clears, Englands economy is going to the MOON. I havent bought an ETF or stock in years but I'm getting on board, England may well be the best investment opportunity out there right now.

TheReplacement's picture

In that case you are way too early.  Do you see blood in the streets?  Wait for it.

HANGEMHIGHER's picture

What a load of lieing bollocks.

Niall Of The Nine Hostages's picture

Carney must be aware that he'd have done more to steady the pound by buying one-way tickets for the first flight to Toronto the morning of the referendum.

The Arabs are soiling themselves with fright and pulling out their loot like there's no tomorrow---which for Islam in Europe is not far off now, thank God. There's nothing Carney can do about that, or should. 

Only one thing will set the British economy right---making manufactured goods proudly made in England by Englishmen competitive again. You do that by lowering taxes, reducing regulation, cutting off the parasites of all races and creeds and sending them to the gallows or to whatever cesspit they crawled out of. All the funny money in the world won't do a damned bit of good.