The Bank of England (BoE)’s Financial Policy Committee (FPC) meets today concurrent with the release of second quarter GDP figures,
The Bank of England (BoE)’s Financial Policy Committee (FPC) meets today concurrent with the release of second quarter GDP figures, which are likely to show a continued contraction.
The FPC does not set interest rates—its mandate covers stress testing banks, setting capital requirements and other actions aimed at reducing systemic risk in the UK financial system. Today’s meeting will likely centre on risks that are magnified by the ongoing pandemic, which may include firms’ operational resilience or the threat of large unsecured loan losses. Levels of unsecured debt typically rise with unemployment and pose a greater risk to banks than secured debt, such as home mortgages.
These risks will be closely monitored in the short-term as the recent rise in COVID-19 cases has prompted the return of restrictions on businesses and public socialising, threatening to exacerbate an already pessimistic economic outlook for the remainder of the year. However, based on previous stress tests, the FPC has concluded that British banks are resilient enough in their current structure to weather even an extreme shock to the system. As such, expect little formal guidance in the short-term while public health remains in flux.
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