Bank of England raises capital requirements for UK banks by $14.5 billion

Yuri Gripas | Reuters

Bank of England Governor Mark Carney leaves after speaking at 2017 Institute of International Finance (IIF) policy summit in Washington, U.S., April 20, 2017.

The Bank of England has told British banks to rise capital requirements for banks in case of an economic downturn.

British banks will have to increase their capital buffers by 11.4 billion pounds ($14.5 billion) to protect them from economic risks related to Brexit and growing consumer credit.

“The Financial Policy Committee (FPC) is increasing the U.K. countercyclical capital buffer (CCyB) rate to 0.5 percent, from 0 percent,” the bank said in its latest financial stability report on Tuesday.

“Absent a material change in the outlook, and consistent with its stated policy for a standard risk environment and of moving gradually, the FPC expects to increase the rate to 1 percent at its November meeting,” the bank added in the report.

The bank had chosen last year to reduce the capital requirements for banks to allow them to borrow more to households and firms – a measure aimed at keeping the economy floating amid the uncertainty on the country’s future trade relations with the EU.

However, the financial committee noted that there are several risks both domestically and external calling for precaution.

“Risk levels in some sectors are more elevated, notably so in the consumer credit market,” the bank said.

“Global risks — which could influence the risks on UK exposures indirectly via their potential effects on U.K. economic growth — are also judged to be material, as are risks from some asset valuations. The FPC’s measured approach is likely to decrease the risk that banks adjust by tightening credit conditions, thereby minimizing the cost to the economy of making the banking system more resilient,” the BOE said.