10 things in the Financial Stability Report
The Bank of England's (Bank) Financial Stability Report (December 2019) flagged changes to the UK bank capital framework, interesting stress test results and other changes to look out for in 2020. Investors and analysts are looking at these areas to understand banks' maximum distributable amount (MDA).
This takes effect in one year and in time for the next stress test. It is not happening because the Bank perceives increasing risk - the world is not a riskier place. The technicians at the Bank have simply looked at the last stress test and said the amount of CCYB needed was between 3.5% and 5%, and to build up to that buffer ahead of the next crisis could take some time.
So instead of leaving all of the heavy-lifting until the last minute, the Bank has re-set the CCYB appropriate for a 'standard risk environment'. It now requires 2% of capital for 'standard' risk conditions. From 2%, the regulators would only increase CCYB if they saw risk building e.g. rapid credit growth.
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