Bank of England sees financial system shock risk back to pre-pandemic level

Bank of England President Andrew Bailey said weaknesses that could shock the UK financial system were back to a record level, similar to the period before the Covid-19 pandemic.

During the press conference following the publication of the Bank of England’s financial stability report for December, the official said there was little evidence of deteriorating home lending standards, and that weaknesses in British corporate debt had increased modestly during the pandemic.

However, exposure to global debt and leverage remains relevant to the UK financial system, according to Bailey.

‘strong’

The UK’s major banks have sufficient liquidity and capital to continue to support the recovery of households and businesses from the Covid-19 crisis or even in the face of “most risky” scenarios, according to a Financial Stability Report released on Monday. .

As for the health of the markets, the Bank of England reported that the financial risk ratio remained high compared to historical levels, even regardless of the recent volatility. You noted that “low risk compensation in some markets may be evidence of yield-seeking investor behavior, which may reflect the persistent environment of low interest rates. This creates an opportunity for a sharp correction in asset prices.”

According to the entity, there are uncertainties surrounding the economic recovery due to short-term pressures on prices and supply chains. The Bank of England is also highlighting the potential effects of the covid-19 pandemic on activity if the novel coronavirus variants prove more resistant to currently available vaccines.

With the return of risks to the financial system to levels similar to the period before the health crisis, the entity decided to increase the countercyclical reserve capital from 0% to 1%, to be implemented in December 2022. If the economy continues to recover, the instrument must be subject to an increase new in the second quarter of next year, to 2%, the Bank of England forecast.

encoders

In the report, the British BC also stated that the Financial Stability Committee categorized systemic risks through “cryptoactive” as “limited”, with a potential for future growth.

At a press conference on Monday, Bank of England President Andrew Bailey warned against the volatility of these assets and said his investors were at risk of losing their entire investment.